A First Look at Potential Income Tax Changes

This issue of “Bernie’s Blog” comes to you from Tim Kriegel who is a CPA, as well as part of our LFS family.

This month we want to look at the tax proposals impacting individuals that have been floated by President Biden.  We will keep our discussion to the major points and those that are more likely to impact our clients as there have been a lot of ideas discussed.  From what we have been able to discern, even if Congress would pass tax legislation this year, the changes would not be effective until 2022. However, now is the time to start discussing and thinking about the possible implications.  

Major potential changes:

• Top income tax rate on individuals increased from 37% to 39.6% for single filers with incomes above $452,700 (joint filers $509,300). 

• Long term capital gains of taxpayers (single or joint) reporting $1 million or more income on their returns would pay capital gain taxes at a rate of 39.6% up from 20% today. 

• The tax benefit of itemized deductions for those earning over $400,000 will be capped. 

• FICA taxes would be imposed on wages above $400,000. 

• The current Estate/Gift tax rate and exemption would remain unchanged.   

One of the biggest potential items impacting our clients is the proposal to change how unrealized gains are taxed at death.  The proposal eliminates the stepped-up cost basis on inherited assets upon death.    

There are several exemptions which we will be glad to discuss when we meet.

The President’s proposals are a starting point and will not pass Congress as-is.  They are bound to evolve, and compromises will be made, but we should all be aware of the ongoing discussions.  The last discussion item will impact a lot of people.