Taxes, Take One

September 22, 2021 - Published by IAG Wealth Partners

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We are starting to get our first glimpses of potential tax changes that could be coming as early as last week and as far away as ten years from now.

The U.S. House of Representatives’ Ways and Means Committee has begun their work of crafting $2 trillion of tax increases. There will likely be substantial changes to these specific proposals as the legislative process grinds forward, but these at least give us some hints about where Congress intends to raise taxes for individual taxpayers:

  1. Capital gain and dividend taxes. Current proposals increase the tax on long-term capital gains and dividends to 25% (from 15% or 20%) for taxpayers in the highest tax bracket (over $450,000/$400,000 joint/single). This would be effective for realized gains after September 13, 2021, with a few limited exceptions. The 3.8% net investment income tax would still be added to this for taxpayers with taxable income over $250,000/$200,000 joint/single.
  1. Income taxes. Draft legislation would increase the top tax rate from 37% to 39.6% next year. It would also lower the threshold for reaching the top tax bracket from $628,300/$523,600 joint/single to $450,000/$400,000 and add a 3% surtax on any income over $5 million. As proposed, there are no income tax changes for individuals with less than $400,000 of taxable income.
  1. Roth conversions. The proposed changes would prohibit Roth conversions using after-tax retirement plan contributions starting in 2022. Additionally, they would ban Roth conversions completely for taxpayers with over $450,000/$400,000 joint/single after 2031.
  1. Required Minimum Distributions. If you are fortunate enough to have taxable income over $450,000/$400,000 joint/single AND retirements accounts valued at over $10 million, you would be subject to significant Required Minimum Distributions every year (no matter how old you are).
  1. Estate taxes. Initial drafts propose cutting in half the unified estate and gift tax exemption from an inflation-adjusted $10 million per person to an inflation-adjusted $5 million per person starting in 2022. However, the current proposal would preserve the “step up” in cost basis that reduces capital gains taxes when inherited assets are sold.

Interestingly, one issue that is not included in the Ways and Means Committee proposal is either eliminating or raising the $10,000 cap on income tax deductions for state and local taxes (SALT). This cap is unpopular in high-tax states which many Democratic House members represent, but also heavily benefits upper income taxpayers. It is likely that some SALT changes will be included in a final bill, but Congressional leadership is actively avoiding conflict by leaving those details out of the bill right now.

The draft legislation also includes almost $1 trillion of tax increases on businesses, including increasing the maximum corporate tax rate from 21% to 26.5%

Please keep in mind that none of these provisions have been signed into law and may change significantly if they do make it through Congress. Always consult with your tax professional prior to making any tax-related decisions as your tax circumstances are unique.

We will continue to actively monitor any changes to tax law that could impact your financial plan and, working with your tax professional, assist you in minimizing the impact of the proposed tax increases on your long-term financial well-being.


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Securities offered through LPL Financial. Member FINRA/SIPC. Investment advice offered through IAG Wealth Partners, LLC, (IAG) a registered investment advisor and separate entity from LPL Financial.

Any opinions are those of IAG and not necessarily those of LPL Financial. Expressions of opinion are as of this date and are subject to change without notice. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. No strategy assures success or protects against loss. Investing involves risk including loss of principal.

Photo by Jon Tyson on Unsplash

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