September 27, 2021

The Impact of the Biden Administration's Proposed Tax Reforms

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Last week, the House Ways and Means Committee released a summary of proposed tax increases intended to fund the Biden administration’s $3.5 trillion budget plan. Among other progressive initiatives, the $3.5 trillion Biden spending bill in front of Congress includes spending for: (1) Medicare and Medicaid expansions; (2) drug price reductions; (3) green energy subsidies; (4) childcare subsidies; (5) the child tax credit; and (6) paid family leave.

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What You Need To Know

Remember, the bill is not in final form and has been a moving target for weeks. However, any version of the bill, if passed, is likely to be the most significant tax overhaul since 1984. Moreover, it is projected to upend many existing arrangements – perhaps even retroactively. It is critical to meet with your estate planning attorney and financial advisors now - especially if your assets exceed $5,000,000 (single) or $10,000,000 (married), if you are a beneficiary of an irrevocable trust, or if you ever created an irrevocable trust. Our team will share more on the developments related to estate planning in our newsletter next week.

Proposed Tax Code Changes

  • Raise the top marginal tax rate to 39.6% starting in 2022 for individuals with taxable income of $400,000 and for married individuals filing jointly with taxable income of $450,000
  • Increase the LTCG rate to 25%, applicable to sales occurring after Sept. 13, 2021, unless pursuant to a binding contract in force on or before that date
  • Add a 3-percentage-point surtax applicable to ordinary and capital gains income exceeding $5 million
  • Force distributions from “MEGA IRAs” and limit contributions once the account exceeds threshold amounts
  • Eliminate Roth Conversions for those in the top income bracket upon expiration of a 10-year window (effectively encouraging such taxpayers to convert to Roth accounts so taxes are paid sooner)
  • Eliminate valuation discounts for lack of control or lack of marketability that are attributable to non-business assets, with a carveout for working capital
  • Change valuation adjustments effective January 1, 2022
  • Eliminate IDGT sales effective January 1, 2022
  • Increase the Farm Exemption from $750,000 to $11,700,000
  • Change the QSBS once AGI exceeds $400,000
  • Apply Wash Sale Rules to cryptocurrency
  • Cap 199A deduction for individuals at $400,000 and married couples at $500,000
  • Replace flat 21% corporate income tax rate with graduated rates of 18% on the first $400,000 of income, 21% on income of up to $5 million, and 26.5% on income above $5 million
  • Limit business interest deductions and tax foreign income at higher rates
  • Increase the holding period for carried interest from 3 to 5 years
  • Limit deductions for conservation easements—retroactive to September 2016

The tax and estate planning team at Frost Law can help you navigate these new rules and update your estate plan as appropriate and necessary. Call us today at 410-497-5947 or schedule a confidential consultation with our brief contact form.

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