Over the summer and fall, there has been a lot of talk about the tax legislation going through Congress. It’s called the Build Back Better Act. The legislation has gone through the House and now is in the Senate with some kind of passage expected by the end of the year. So that is what I want to talk about today.
When it first came out there were a lot of tax changes, right?
- Yes, this was going to be a very large bill that would affect mainly the wealthy but was also going to impact others.
- But it has been scaled down (at least at this point).
That’s because of Senators Manchin and Sinema right?
- Correct. Since the Senate is tied at 50-50, the Democrats need every vote in order to pass anything.
- This means that if those two senators do not agree, it will not pass.
- So the bill has been severely watered down.
Ok let’s talk about what is in the bill.
- Here is what’s in.
- New surcharge on those married couples making over $10 million (5%) and $25 million per year (5% plus 3%).
- This may seem like a high number, but if you have a trust, the surcharge starts at $200,000.
- This would start in 2022
- There would also be an expansion of the 3.8% surcharge to include business income. Previously this was reserved for mainly investment income.
- The 3.8% would apply for those married individuals with income over $500,000.
- This would start in 2022.
- Then comes the one that may affect many people – an expanded state and local tax deduction. The current deduction is limited to $10,000. That would increase to $80,000 for married couples.
- This would start in 2021, so you may want to look at paying your real estate taxes and state income tax estimates before the end of the year.
- New surcharge on those married couples making over $10 million (5%) and $25 million per year (5% plus 3%).
So what is out?
- The tax rate increase from 37% to 39.6% is out as of now.
- The capital gain rate increase from 20% to 25% is out
- Limitations on the Qualified Business deduction (up to 20% of business income) for higher-income business owners are out.
- Corporate tax increase from 21% to 26.5% is out.
- So good news at this point.
Be sure to talk to a tax professional if you have any questions about the income tax items.
As a partner, I have thorough experience providing tax services to individuals, privately held businesses, nonprofit entities and estates and trusts. I also provide compilation and review services.
