While we’ve experienced upheaval and change in many areas this year, one arena has garnered much anxiety and little clarity – the tax landscape. Throughout his campaign, President Biden promised tax increases, and finally, we’re seeing his promises become law, and who is targeted and affected.
Tax changes are coming – not just in rate, but in philosophy. For example, current proposals eliminated the flat 21% C-corp tax rate, replaced by the previously-retired graduated rate structure. And that big C-corp change is just one small part of the proposal that is making its way to the legislative floor.
Expect changes in wash sales rules, in S-corp profits, and new or increased taxes on AGI in excess of $5M and also trusts.
While Washington’s goal is to surgically impact only a certain subsection of the US taxpayer population, the impact of sweeping tax changes are likely to affect us all.
Over the past few weeks, members of the Annex team have been preparing assessments on how folks may be affected, and how we can help adjust or change planning to optimize their financial plan.
The House tax proposal will especially hit small businesses that pay taxes through the individual code. They’ll pay the higher individual rates, including a new 3.8% surtax on small business income, and they’ll pay on more of their income because the Democratic proposal eliminates the 20% deduction on qualified business income.
Preparing for change might be hard if you’re a do-it-yourselfer. For example, consider the current proposal that households earning $1 million or more would see their taxes increase by almost 11%. That’s an extra $96,000 a year. While a do-it-yourselfer might be processing the impact of that lost income, an advisor might be considering what planning opportunities exist to reduce that tax increase.
Unfortunately, some of the “go-to” strategies may themselves be changing. One proposal has contributions to Roth and Traditional IRAs eliminated if the account value exceeds a certain figure and income is over 400k for a single person. There’s a lot to process, in a short span of time, as you prepare a tax plan on your own.
For a DIYer, it may feel like being pulled away from the shallows near the shore out into the deep, cold waters. There’s a lot to know, and the impact of ignorance could be significant. It might be time to find an advisor you can trust – maybe even one with a team of planning professionals at his or her back – to help walk with you through the sweeping changes that are proposed.