Potential Tax Increases and Gift and Estate Tax Exemption Decrease

From time to time we get great summaries from Financial Advisors that we work with that preserve and grow our client’s assets. Here is one form Chris Radici, Financial Advisor at UBS, that we thought was really good:

The House Ways and Means Committee has released the initial draft of the budget reconciliation bill Democrats hope to pass in the coming weeks.  While the bill contains many material changes in tax provisions, it is important to note that Senate democrats will be drafting their own separate bill that is likely to have significant differences from the House version.  These differences will need to be reconciled prior to creation and passage of a final bill.

We are closely monitoring new developments as they occur and are mindful of the effects that changes in tax policy may have on your personal situation.  As always, we maintain a focus on tax-efficiency in our portfolio management and seek to identify beneficial estate planning strategies for you and your family.  An article from the UBS Advanced Planning Group detailing some of the most impactful potential changes is attached to this email.  We’ve highlighted some of the most notable proposals below: 

  • Top individual income tax bracket rate (effective 1/1/2022):
    • Reverts to 39.6% from the current rate of 37%.
  • Top individual income tax bracket thresholds (effective 1/1/2022):
    • Lowered to $450,000 (from $628,301 in 2021) for married individuals filing jointly.
    • Lowered to $400,000 (from $523,601 in 2021) for unmarried individuals.
  • Top capital gains tax rate (effective 9/13/2021):
    • Increases to 25% from 20% (3.8% net investment income surcharge continues to apply).
  • Additional 3% tax on adjusted gross income above $2.5 million for married individual filing separately, trusts or estates with income above $100,000, and $5 million for any other taxpayer.
  • The gift and estate tax exemption will be reduced from $11.7 million to roughly $5.5 million beginning (effective 1/1/2022).
  • Corporate Tax Rate Rates & Structure (effective 1/1/2022):
    • Transition from flat 21% rate to graduated rate.
    • 18% on first $400,000 of income, 21% on next $400,000 to $5 million of income, 26.5% on $5 million+.
    • Additional tax of 3% or $287,000 (whichever is less) on income greater than $10 million.
  • Expanding wash sale rules to apply to commodities, currencies, and digital assets.

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