More Tax Changes To Come. Should You Be Prepared?
Listen up: the new tax proposal may affect you in one way or another. Here’s some information for you to prepare.
An increase in the capital-gains rate for certain high-income individuals.
The provision increases the capital gains rate to 25%, from 20%. If the tax bill becomes law, this provision would become effective dating back to April 2021.
An increase in the top marginal individual income tax rate.
More important for next year, this provision increases the top marginal individual income tax to 39.6%, up from the current 37%. This marginal rate applies to married individuals filing jointly with taxable income over $450,000; heads of households with taxable income over $425,000; unmarried individuals with taxable income over $400,000; married individuals filing separate returns with taxable income over $225,000; and estates and trusts with taxable income over $12,500.
The amendments made by this section apply to taxable years beginning after Dec. 31, 2021.
Recommended Read: Joe Biden Announces Plan to Increase Tax Rate, Will You Get Affected?
The tax proposal would eliminate the “doubled” estate tax exemption, reducing estate and gift tax exemption to approximately $5.8 million beginning in 2022.
It also includes proposed changes to the tax treatment of grantor trusts previously excluded from an individual’s taxable estate, as well as changes to valuation discount rules for transfers of entity interests. The legislation proposes an increase in available valuation reduction for qualified real property.
An increase in the corporate tax rate.
This provision replaces the flat corporate income tax with a graduated rate structure. The rate structure provides for a rate of 18% on the first $400,000 of income; 21% on income up to $5 million; and 26.5% on income thereafter.
Business income concerns.
The tax proposal applies a Net Investment Income Tax to active trade or business income of individuals with taxable income over $400,000 (or $500,000 if married filing jointly).
NIIT is a tax on investment income such as capital gains, dividends, and rental property income. The proposed tax measure adds another 3.9% on top of the 39% tax.
Residents should determine tax-saving strategies for the new year. To manage your tax, refer to a certified public accountant you can trust.
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