![]() ![]() This applies to married couples with taxable income over $450,000, unmarried individuals with income exceeding $400,000, and heads of households with taxable income over $425,000. The proposed bill would impose new contribution limits on retirement accounts (traditional IRAs, Roth IRAs, or defined contribution accounts), essentially prohibiting new retirement account contributions for taxpayers whose aggregate retirement account balance exceeded $10 million in the prior tax year. Discounts for assets used in active businesses (such as farms or family businesses) would still be permitted. ![]() ![]() Under the proposal, these discounts would no longer be allowed for “passive” assets, meaning those that are used are only for the production of income. The new owners do not have full control of the asset, and consequently claim a discount on the value of their interest. Presently, a taxpayer can take a valuation discount on an asset, including publicly traded stock, by placing it inside a limited liability company or another entity and then dividing it up among the taxpayer’s heirs, or trusts for the benefit of the taxpayer’s heirs. The bill would also limit valuation discounts on non-business assets. This would be effective only for future trusts and future transfers made after enactment of this provision. Sales between grantor trusts and their deemed owner would be treated as sales between the owner and a third party, rather than their current status being treated as a disregarded transaction. The proposed bill would include grantor trusts in a decedent’s taxable estate when the decedent is the deemed owner of the trusts for income tax purposes, taking away a popular tax planning strategy. Changes to Grantor Trusts and Valuation Discounts However, qualified real property used in a family farm or family business would be entitled to a special valuation reduction of $11.7 million based on its actual use rather than its fair market value. This reversion was previously scheduled to occur at the end of 2025. Under the proposed bill, the estate tax exemption amount, which is currently at $11.7 million per individual, would revert to $5 million (indexed for inflation) effective January 1, 2022. These changes would be effective Janu(except for the capital gains increase, which would be effective as of the date of the proposal, September 13, 2021). Other tax increases in the proposed bill include replacing the flat corporate income tax rate of 21% with a graduated rate structure the proposed top rate would be 26.5% for income exceeding $5 million (and the benefit of the graduated rate would phase out for corporations with more than $10 million in income). Capital gains tax rates (currently 20%) are raised to 25% for incomes over $400,000. The 199A qualified business income deduction would no longer be available for individuals earning over $400,000, or married couples earning over $500,000. ![]() An additional 3% surcharge is imposed on income in excess of $5 million (or $2.5 million for a married taxpayer filing separately). The proposed bill raises the top individual income tax rate from 37% to 39.6% for 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 separately with taxable income over $225,000, and estates and trusts with taxable income over $12,500. Tax Changes for Individuals and Corporations The tax proposals primarily affect corporations and the wealthy, with provisions changing the corporate tax rate, the estate tax exemption, capital gains tax, and imposing limitations on grantor trusts and valuation discounts for non-business assets. The House of Representatives Ways and Means Committee Chairman introduced new tax proposals on Monday that would raise more than $2 trillion in tax revenue as part of the Democrats’ effort to roll back the Trump administration tax cuts. ![]()
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