Pending tax legislation could affect high-net worth individuals and corporations

Sept. 13, 2021 will be a date to remember if pending tax legislation passes. The House Ways and Means Committee recently approved a tax package that could have major implications for high-net-worth individuals, corporations, and international businesses.

If the package continues to pass through and is approved by Congress, individual tax rates will increase.

Long-term capital gains (assets held for more than one year) will see the top tax rate increase to 25% from 20% for all transactions made after September 13, 2021.

Taxpayers will also see the top income tax rate increase to 39.6% from 37% for taxpayers with taxable income over $450,000 for married filing jointly, $425,000 for head of household, $225,000 for married filing separately, or $12,500 for estates and trusts. The increase will go into effect for tax years after December 31, 2021.

There will be a super-rich surcharge tax of 3% for taxpayers with an annual adjusted income of over $5 million.

The bill limits any further contributions to an IRA if the total value of the IRA and defined contribution accounts such as 401(k)s exceed $10 million at the end of the prior year, and the taxpayer earns more than $400,000 if single or $450,000 if married filing jointly.

The tax package also includes both domestic and international tax implications for corporations.

If the legislation passes, businesses with taxable income above $5 million will have the top tax rate at 26.5%, businesses with taxable income between $400,000 and $5 million will have a tax rate of 21%, and businesses with taxable income below $400,000 will have a tax rate of 18%, a 3% decrease in the current tax rate of 21%.

There are several international tax provisions, including a reduction of global intangible low-taxed income (GILTI) based on the country, reduction of qualified business asset investment (QBAI) deduction, an increase on the tax on foreign-derived intangible income, a change to allowable foreign tax credit carryforward and carrybacks, and a limitation on some interest expense deductions for certain multinational businesses.

While tax laws continue to change, the tax team at Rodefer Moss is following the latest developments and will stay abreast of any new guidance.

If you think you may be affected by the passing of this tax legislation, please do not hesitate to contact your tax advisor. Since the Sept. 13 deadline for changes to capital gains has already passed, it is even more imperative to begin planning for potential changes as soon as possible.

Every situation is different. The team at Rodefer Moss will work with you to maximize your tax benefits while staying compliant with current tax law. Contact us today.

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