Oct 25, 2021

Build Back Better Act and Related Changes

by Douglas R. Eisenberg, Esq.

As former President Barack Obama once said, “elections have consequences.” This truism is still as valid today as it was then. As it relates to proposed tax legislation as detailed below, taxes will be increased so that additional revenue is created to help pay for the myriad of new spending on “infrastructure” and the like. As of this writing, nothing is certain as the two wings of the Democratic party struggles to come to an agreement.

The following summary is presented as the ideas that have been discussed as a framework for legislation. We shall see what actually transpires.

 

CURRENT LAW IN 2021

PROPOSAL

Ordinary Income Tax Rates

   

Tax Rates

Top Rate 37%

Increases to 39.6% for individuals and married couples with taxable income which exceeds $400,000 and $450,000, respectively. Additional tax of 3% on income exceeding $5,000,000.

Qualified Business Income Deduction

20% deduction for “Qualified Business Income.”

For single taxpayers with $400,000 of income and $500,000 for married couples the deduction would be further limited.

Rates on Capital Gains / Dividends

Top return of 20% plus 3.8% net for investment income 1-year holding period. (Long Term Capital Gains)

Increases to 28.8% (with net investment income) for individuals with taxable income in excess of $400,000 and married couples over $450,000.

Surtax on Net Investment Income

3.8% above $200,000 AGI (single); $250,000 (married); Trusts with income over $12,400.

Modification to also count income derived in ordinary course of trade or business.

Estate/Gift Exemption

Current flat top tax rate of 40% with $11.7 million lifetime exemption, per person.

a)       Lifetime exemption reduced to $5 million.

b)      Also makes change to Grantor Trust transfers and sales.

c)       Changes to valuation discounts for passive assets.

Corporate Tax Rate

Top rate of 21%

Graduated rate of 18% on first $400,000; 21% on income from $400,000 to $5,000,000; 26.5% on income in excess of $5,000,000 and in excess of $10,000,000 flat rate of 26.5%.

Pass-Through Rates

Top rate of 37%

See above (Tax Rates)

Other Changes

a)       Modification of Foreign Derived Intangible Income (FDII) and Global Intangible Low Taxed Income (GILTI);

b)      Modifications to Retirement Plans and Required Minimum Distribution (RMD).

 

For more information, contact Douglas R. Eisenberg at dre@spsk.com or at (973) 540-7302.