by: Steven W. Novak, JD, Managing Director

 

After months of negotiations between the White House, moderate Senate Democrats and progressive House Democrats, a tentative ‘reconciliation bill’ (aka the “Build Back Better” bill) has emerged.   There is no guarantee of passage, but as of now it appears that many (but not all) of the prior tax proposals affecting individuals could be dropped in favor of increased enforcement of existing tax laws and increased taxation at the corporate level, among other changes.

 

 

At a high level, this could result in many of the tax changes enacted as part of the 2017 Tax Cuts and Jobs Act remaining in place until the end of 2025, including:

 

1. Individual income tax rates, with the current top rate of 37% (was proposed to move to 39.6%)
2. Capital gains tax rates, with the current top long term rate of 20% (was proposed to move to 25%)
3. Estate tax exemption amount, with the current amount of $11.7 million (was proposed to be reduced by 50%)

 

 

Those proposals affecting individuals that remain in the new bill’s framework at this time include:

 

1. The millionaire ‘surtax’ (newly proposed as a 5% increase in top individual rate for those making over $10 million per year (or only $200,000 for a non-grantor trust), and 8% above $25 million (or only $500,000 for a non-grantor trust)
2. Increased funding for the IRS to focus enforcement efforts on wealthy individuals
3. Continuation of limitations on deduction for business losses for wealthy individuals
4. Expansion of the net investment income tax relating to business profits
5. Limitations to the benefits of Qualified Small Business Stock (QSBS) for high income individuals

 

Perhaps most notably for those engaging in sophisticated estate planning, neither the proposal to change the rules surrounding ‘grantor trusts’ nor the proposal to eliminate many valuation discounts associated with transfers of family entity interests appear in the framework.  If also left out of the final bill, this would allow individuals to continue to take advantage of many of the most effective estate planning techniques that have developed over the past several decades.

 

 

Finally, several proposals related to increased RMDs on large IRA balances and limitations on Roth IRA conversions have been left out of the latest framework.

 

 

We will keep you updated as events develop!

 

 

This report provides commentary for informational purposes only and should not be construed as legal, accounting, tax, investment, or other advice.  RGT is neither a law firm, nor a certified public accounting firm.  Each prospective investor should consult with its own counsel and advisors as to all legal, tax, regulatory, financial, and related matters concerning this matter.  You should not assume that any discussion or information contained in this commentary serves as the receipt of, or as a substitute for, personalized advice from RGT.  Certain information contained herein may have been provided by sources we believe to be accurate, however, we do not warrant the accuracy of such information. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  No representation is made as to the likely outcome of the enclosed predictions.

 

 

ANY QUESTIONS: RGT Wealth Advisors’ Chief Compliance Officer remains available to address any questions regarding this Presentation.