How do the New Tax Proposals Affect You?

“I am proud to be paying taxes in the United States. The only thing is – I could be just as proud for half the money.”
Arthur Godfrey

I think we all feel this way! We know the two most certain things are death and taxes, but while we can be a proud American, everyone enjoys paying less taxes. Tax laws are likely to change in the near future. As they are complex in nature and different media outlets report different details, it is hard to grasp what these changes truly mean. We will do our best to inform you on details that have a potential of impacting you, and we are doing our best to remain up-to-date.

If the tax proposals pass in their current form, these individuals will probably not be affected:

• Those with income less than $400,000 likely won’t see any increase in their ordinary income rates.
• If husband and wife taxpayers have less than $7 million—or maybe $10 million—in net worth they won’t have to worry about paying federal estate taxes.

The proposals can create some challenges for certain taxpayers. Some of the largest changes would affect the following:

1. Large Income Earners ($400k + for individual or $450K + for joint)
   • Current Legislation - top individual tax rate for 2022 of 37%. If you make over $523,000 for single taxpayers or $628,300 for married filing jointly earnings over that amount would be subject to a tax rate of 37%.
   • Proposed Legislation - increasing the top rate to 39.6% beginning in 2022 for single taxpayers over $400,000 and married filing joint taxpayers with income over $450,000.
   • Actions to Consider.
     • Shift income from 2022 to income for 2021 (this year).
     • Maxing 401K Contributions.
     • Utilizing and maxing out an HSA account if you’re eligible.
     • Contributing to a 529 Account for college expenses.

2. Those with large Capital Gains Earnings as well as Capital Gains via Sale of Business or Real Estate
   • Current Legislation – 20% max capital gain rate.
   • Proposed Legislation - increasing the top preferential capital gains rate to 25%.
   • Actions to Consider.
     • Shift Capital Gains to 2021 if applicable.

3. Capital Gains via Sale of Business or Real Estate
   • Current Legislation - a 3.8% surtax applies to investment income not derived from a trade or business for single taxpayers with income over $200,000 and married filing joint taxpayers with income over $250,000.
   • Proposed Legislation - expanding of the NIIT application of this tax to include investment income derived from a trade or business and increases the income threshold for single taxpayers to $400,000 and married filing joint taxpayers to $500,000 beginning in 2022. This might affect a business owner selling their business, an individual selling their home, or a real estate investment selling for a gain. In 2021 these events would have been taxed at a capital gain rate maxing at 20%. However, in 2022 under the proposed legislation these gains will be counted as ordinary income and if over $400k for an individual or $450k for a joint filler could be taxed at a new max of 39.6%, plus an additional 3.8% Net Investment Income Tax.
   • Actions to Consider.
     • Speed up a business sale or real estate sale to 2021.
     • Implement an agreement to receive funds over a couple of years instead of a lump sum payment in 2022.

4. Estates larger than approximately $10MM for a couple.
   • Current Legislation - the exemption (and the gift tax exemption and generation-skipping tax exemption) is $11.7 million per individual - $23.4 million for a couple.
   • Proposed Legislation - a decrease in the estate tax exclusion to $5 million per individual or $10 million for a couple. This proposed change to a couple’s exemption amount ($10MM) being less than what is the current individual’s amount ($11.7MM) could affect many households. With someone’s estate comprising of land, real estate, possessions, investments, cash and other assets; this lower exemption amount is more likely to be reached.
   • Actions to Consider.
     • Giving $15,000 per person per year.
     • Seek the advice of an estate attorney for reducing your tax liability.
     • We advise our clients to revisit their estate plans approximately every 5 years.

It is important to note that none of these changes have taken place as of writing this. We don’t know if or when these changes may take place, and it is very likely that numbers will fluctuate and change. However, we want to make you as aware as possible of the concepts that are being presented.

Any opinions are those of Stribling~Whalen Financial Group and not necessarily those of Raymond James. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person’s situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional.

As always, thank you for the introduction of your friends and family that so many of you have made. We are honored to serve you! As a service to our clients, we are happy to act as a sounding board for your friends and family. Your family is our family as well. If any of them should need a second opinion on their financial situation, introduce them to www.striblingwhalen.com or call us at 678-989-0048.