December 15, 2021
Though the final price tag of the Biden administration’s infrastructure plan is not absolute, it may increase federal spending by about $3.5 trillion over the next decade.1
President Biden and his administration proposed changes to the tax laws to provide funding for The American Families Plan and The American Jobs Plan. On Sept. 13, 2021, the Congressional Ways and Means Committee that is responsible for new tax laws, released draft legislation.
Before a final bill passes, the president, Democrats in Congress, and the Senate may modify some provisions under negotiation. The bill may be enacted in Nov. or Dec. 2021. Some provisions may be effective immediately upon enactment. Most provisions may take effect January 1, 2022. 4
The proposed changes to tax legislation are meant to increase taxes for only the top 1% to 2% of wealthy taxpayers who are the high earners, high-net-worth families, and corporations.
Here are some of these potential changes and how you may be able to mitigate their impact on your 2022 taxes.
Under the tax proposal, the top marginal income tax rate would go from 37% to 39.6% for 2022. This top-rate would apply to:
Additionally, the Biden administration has suggested raising the top corporate tax rate to 26.5% on those companies that earn more than $5 million.
This proposal would also increase the top federal tax rate on long-term capital gains from 20% to 25% for single filers earning $400,000 or more per year and married filers earning $450,000 or more per year.
This $400,000-per-year income threshold is a common theme. Those earning more than this amount with more than $10 million in retirement accounts will not be able to make additional contributions. At the same time, $400,000-per-year earners will also be unable to make Roth conversions or contribute to a “backdoor” Roth that converts a traditional individual retirement account to a Roth.
For the 2021 tax year, the federal government exempts $11.7 million per person from federal estate taxes. But assets over this amount are taxed at 40 %, higher than even the very top marginal tax rate. If the Biden administration’s proposal passes, this number will be cut by more than two-thirds, setting the federal estate tax exemption at $3.5 million and taxing all inheritances over this amount.
In summary, proposed changes for individual taxpayers are: 2 3
Though none of these proposals have yet made their way into law, it may be worthwhile to schedule a chat with your financial professional to see what changes you may need to make in 2022.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
LPL Financial Representatives offer access to Trust Services through The Private Trust Company N.A., an affiliate of LPL Financial.
This article was prepared by WriterAccess.
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