Taxtember took a whole new focus this past week when word from Washington on proposed tax increase were released. You may have felt like you had a bullseye on your back if your income was above a certain threshold. The proposed tax increase really focus on the “rich” which in Washington means families with income over $450,000 (Married Filing Joint) or $400,000 (Single).
For those families the tax bracket would increase from 37% to 39.6%.
For capital gains, the highest marginal long-term capital gains tax rate would increase from 20% to 25%. This change is effective September 14, 2021. The good news is the White House was proposing a capital gains rate of 39.6% and their effective date was back in April. So some may count that as good news.
Now some taxpayers may have seen the light of a laser scope on them if they are in the ultra-high income brackets. An additional 3% flat tax will be imposed of income in excess of $5,000,000 (Married Filing Joint/$2,500,000).
If your retirement accounts (IRA, ROTH, annuities, 401k, etc..) exceed $10,000,000 and your income is over $450,000 (Married Filing Joint) or $400,000 (Single). You may not make additional contribution to IRA or ROTH accounts.
There are some other provisions regarding Required Minimum Distributions if your account value is over $10,000,000. If you are getting close to 72, call your financial advisor for details. Be sure you are sitting down.
The last shot on the rich is ROTH conversions will no longer be allowed. However, that provision doesn’t start until 2032.
The provision that may effect some people is “Backdoor ROTH” contribution will no longer be allowed for anyone starting in 2022. This includes my favorite MEGA Backdoor transaction.
The estate tax exemption which had been increased to $11,700,000 per person would go back to an inflation index amount of around $5,850,000.
Miscellaneous:
Crypto currency sales would now fall under the Wash Sale rule.
QBI Deduction would phase out for high income tax payers.
Corporate tax rates will be moving up depending on the amount of income to a high rate of 26.5%
The provisions above are only proposals. So, Congress will have to debate/negotiate/approve before these become law. Stay tuned.