It’s never a dull moment on Capitol Hill these days. Big tax changes are on the horizon. You must be aware of how the proposed legislation might impact you and your family. While adjustments to the bill are likely between now and January 1, the window to make money-saving moves is closing quickly.
Expect a lot of near-term noise. With the debt ceiling saga ongoing, we foresee many tax proposal revisions in the coming weeks. The evening news and talk shows will no doubt feature dramatic headlines and political talking points. Your team at ISC advisors is here to cut through the clutter. Eventually, a bill will pass and we will adjust financial planning methods around a new tax code.
We continue to prepare for the new rules. ISC took action and contracted with a highly experienced estate planning attorney. Last month, this professional presented potential estate tax changes, including possible strategies that should be considered by individuals who may be impacted by the new rules.
Funny enough, the presentation to our team occurred just a few hours before the proposed legislation was released. Since then, we have conducted numerous follow-ups with the attorney—dissecting and digesting the new information. At ISC, we are intentional about continuously educating ourselves so that we can have meaningful conversations with you.
Our team has also been conversing with tax professionals who are experts specifically in business taxes, individual situations, and trusts & estates. Discussing key provisions of the new policy with these experts has helped our team prepare for a range of outcomes—whether there are minor tweaks to the tax code or if there are wholesale changes (as is currently proposed).
We are also avid consumers of educational and strategic articles, reading as much as we can from financial industry thought-leaders. Each member of the team reads daily, and diving into newly available information from varying perspectives is something we enjoy. Our focus is always to understand how you and your family might be impacted by this constantly changing industry.
Lastly, we talk with you—the client. We listen to your concerns, evaluate your circumstances, and talk through planning strategies that should be considered. While many things are out of our control, understanding how your family might be impacted is our shared starting point. From there, you can expect our team to guide you on the right path forward, making the best use of our preparation and collective knowledge.
Summary of Possible Changes
- Increased top marginal ordinary income tax rate from 37% to 39.6% with reduced income thresholds ($400,000 for Single taxpayers; $450,000 for Married Filing Jointly taxpayers).
- Application of the 3.8% Net Investment Tax (NIT) on S-Corp profits for high-income earners (Modified Adjusted Gross Income (MAGI) of $400,000 for Single taxpayers; $500,000 for Joint filers). The resulting top tax bracket effectively becomes 43.4%.
- For investors, a new long-term capital gains tax rate of 25% for taxpayers in the top marginal income bracket (effective for sales made after 9/13/21 if the bill passes unmodified).
- For business owners, a cap on the Qualified Business Income (QBI) deduction
- Retirement saving: A prohibition on conversions of after-tax money in retirement accounts (no more back door Roth IRAs).
- Estate planning: A 50% reduction of the estate and gift tax exemption from $11.7 million per person to $5.85 million. You may be under this threshold today, but will you in 10 or 20 years?
Please reach out to us if you would like to discuss how these changes may impact you and your family and thanks for taking a look!