Tax Planning

Opinion: Congress decides on the destiny of tax planning on the finish of the yr

SBJ file

Erica Smith

A very busy fall season develops for Congress as the Biden government works to pass a budget that spans many of its campaign platform’s programs. While the congressional committees write the legal text for the Budget Reconciliation Act, business is waiting for the answer to the increasingly important question: “How will this affect my taxes?”

President Joe Biden’s budget consists mainly of two parts: the American Jobs Plan and the American Families Plan. The employment plan includes revenue proposals that reform corporate taxation, support housing and infrastructure, and prioritize clean energy. The family plan consists of revenue proposals that boost taxation for high-income taxpayers, expand tax credits for low- and middle-income taxpayers, and invest in improved compliance and services for taxpayers.

At the heart of the US employment plan, the President is proposing to raise the corporate tax rate from 21% to 28% with effect for tax years beginning after December 31st. However, the House Ways and Means Committee has instead proposed a tiered tariff structure with a rate of 18% on the first $ 400,000 of a company’s income, 21% on revenue up to $ 5 million, and a top rate of 26, 5% on revenues greater than $ 5 million. The other corporate tax proposals in the plan focus on changes in international tax policy.

The American Jobs Plan would also create the Neighborhood Homes Investment Act, a proposed $ 20 billion tax credit over five years. The NHIA would support the sale of new buildings, the major refurbishment for sale, and the major refurbishment of existing homeowners of single-family homes, condominiums or apartments in a housing association.

The second revenue proposal, the American Families Plan, aims to increase taxation on high-income taxpayers, close tax loopholes, and improve tax compliance and administration. This proposal would raise the highest marginal income tax rate from 37% to 39.6%. The House Ways and Means Committee has proposed that the 39.6% tax rate apply to taxable income of $ 400,000 for a single parent ($ 450,000 for married couples). In addition, House Democrats have proposed a new 3% surcharge for those with incomes greater than $ 5 million.

Biden’s original proposal would increase long-term capital gains and qualifying dividends for taxpayers with adjusted gross income greater than $ 1 million from 20% to 39.6%. However, the Democrats in Congress have instead proposed increasing the prime capital return rate to 25%.

The president has also proposed removing inheritance tax planning tools such as the carryover base at the time of donation and increasing the base at the time of death. Instead, House Democrats are proposing to cut the lifetime inheritance and gift tax exemption from the current inflation-adjusted $ 10 million per person ($ 11.7 million in 2021) to $ 5 million after adjusting for inflation. among other changes in the way estates and trusts are taxed.

The Biden government aims to close tax loopholes related to various business structures, including taxing carried interests at normal tax rates and ending tax-deferred real estate exchanges under Internal Revenue Code Section 1031.

What’s next? Budget balancing negotiations have encountered some roadblocks, most notably on how to pay for the $ 3.5 trillion dollar spending proposal from the Democrats, but House is still aiming for a bipartisan infrastructure bill and that by the end of September Adopt budget adjustment package.

The budget reconciliation bill would require the support of all 50 Democratic Senators and nearly all Democrats in the House of Representatives to pass without the support of Republicans in Congress. However, moderate Democrats in the House of Representatives say they will not advance the $ 3.5 trillion draft budget until the infrastructure bill is signed.

Senator Joe Manchin [D-West Virginia] wrote a comment in the Wall Street Journal calling for a “strategic pause” on the budget reconciliation proposal amid concerns over rising inflation and rising public debt.

While much is uncertain right now and much more is sure to come, one area seems clear: It will be a dynamic and busy case in Washington, DC

Check with your tax advisor often for updates on your year-end and long-term tax planning.

Erica Smith is a partner in Springfield-based accounting firm BKD LLP. She can be reached at

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