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House Ways and Means Committee Releases Tax Proposals

On September 13th, the House Ways and Means Committee Chairman Richard Neal released tax proposals included in the $3.3 trillion reconciliation. There is much more work (and negotiation) before it becomes law. However, many of the proposals are more favorable than the Biden Administration’s tax proposals released by the Treasury in May of 2021. Absent is an elimination of the stepped-up basis at death and the elimination of the $10,000 cap for state and local taxes. As the process moves forward those may cycle back.
Let’s take a look at some of the highlights:
Individual Provisions
  • Long-term capital gains. For transactions occurring after September 13, 2021, the top capital gains rate would increase to 25% from the current 20% rate. A transition rule provides for the 20% rate to continue to apply to the portion of the year prior to September 13th. Also, gains occurring later in the year that arising from a written binding contract entered into prior to September 13th would be eligible for the 20% rate.
  • For 2022, the top marginal tax rate would increase from 37% to 39.6% for those filing joint returns with taxable income in excess of $450,000. Single filers would begin at $400,000.
  • The net investment tax (3.8%) would be extended to apply to net investment income derived in the ordinary course of a business. This applies to those filing joint returns with taxable income in excess of $500,000. This subjects all income (passive or active) to 3.8% NIIT or 3.8% Medicare tax imposed on self-employed individuals.
  • New 3% surtax on individuals (filing jointly) with modified adjusted gross income exceeding $5 million.
Estate and Gift Tax
  • The federal estate and gift tax exclusion would be reduced from $11.7 to $5 million per individual – returning to the 2020 level. Going forward the $5 million would be indexed for inflation. This would be effective for people dying or gifts made after December 31, 2021.
  • Provisions take aim at grantor trusts basically elimination them as a planning vehicle.
  • The bill limits the ability to use valuation discounts for estate and gift tax valuation purposes. This provision would apply to transfers after the date of enactment.
Business
  • Corporate tax rates would be graduated – 18% on the first $400,000 of income, 21% on income up to $5 million, and 26.5% on income above $5 million. Originally, the administration proposed a 28% rate. Effective for t years beginning after December 31, 2021.
  • Corporations that are taxed as personal service corporations are taxes at a flat 26.5% rate.
  • Increase the work opportunity credit (WOTC) to 50% of the first $10,000 of wages paid to an individual during their first two years of employment if they fall into a targeted group.
  • Requirement to amortize research and development expenses delayed from December 31, 2021, to December 31, 2025.
  • Limit the maximum 199A deduction to $500,000 for joint returns.
Retirement Plans
There are several proposals for changes to retirement plans, IRA’s, and ROTH’s. These rules mainly center on when an account exceeds $10 million, however, they seek to eliminate “back door ROTH” strategies.
We’ll publish more information as the process continues. Please call if you would like to discuss or have questions.