HENRY C KULIK, JR CPA, LLC
TAX UPDATE NEWSLETTER
09/27/2021
There are many swirls around Washington DC re: changes in the US tax code. Please, do not accept the political speeches as truth. Instead, I have researched the proposed laws, printed a copy of the roughly 3,000-page $5.6 Billion combo package between the “Infrastructure bill” and along with the huge goody bag of new “human infrastructure” benefits and tax credits (none for business), and researched numerous proposed tax law changes in professional tax publications.
A few other interesting features of the bill leaked: the Child Tax Credit used to be for you own children, live with you for 6 mo. Now, 1 day and IRS won’t care where they came from, and you’ll get the (new $3,600 per child) entire Child Tax Credit (all refundable now!)
$13B of the new budget busting bill is to purchase electric vehicles and cars for the entire post office and ALL government agencies and employees .(Note- all batteries from China)
INDIVIDUALS
- Increase the maximum individual income tax rate to 39.6% and reduce the trigger point (before surtaxes) from 37% for single filers earning over $400,000, Head of household above $425,000, and married filed joint above $450,000, Married filing separate $225,000. Remember to add the existing “Obamacare surtax” of 1% to all earned income over $200,000 *single, over $225,000 Head of Household, and $250,000 MFJ, while married filed separate over $125,000). Add another 3.8% to any “investment income”. (Capital gains, gambling winnings, rental income, and interest/dividends) on the same thresholds noted above.
- Creates a new 3% “wealth surtax” on modified adjusted gross income above $5 Million
- Stops allowed IRA contributions when balances reach $10M, and accelerate RMDs.
- Stops “Backdoor IRAs” into Roth IRAs
- Enacts a new “journalist tax deduction” of 50% of their salary. Wow! Time to be a reporter!
- Increased tax compliance by doubling the size and IRS enforcement staff by 100%
- New capital gains tax on un-realized profits. If your stock portfolio is worth $100,000 and your cost was only $50,000, you’ll have to pay tax on the “paper gain” of $50,000 even though you have not sold any. That’s one of many “income adjustments” that can push a middle-class family into the “wealthy” tax bracket(s) if they hold a large portfolio.
- Expand the new Child Tax Credit expansion through 2025 and making all of it fully refundable permanently. Adds 17-year-old teens to that credit, just as it did temporarily for 2021.
CAPITAL GAINS
- Increase the capital gains rate to 25%, plus the surtax of 3.8% = 28.8%
- Extend the holding period for carried interest from three to five years
ESTATE AND GIFT TAXES
- Reduce the estate tax ‘exemption’ beginning in 2022, instead of 2026 to a new low of $6,020,000. Changes the unified estate tax credit.
BUSINESS AND PASS-THRU TAXES
- Reduce the maximum value of the Section 199A (20% tax break) to $400,000 (single filers) and $500,000 (joint filers)
- Make the 3.8% surtax apply to all pass-thru (K-1s from S Corporations, etc.)
CORPORATE & INTERNATIONAL TAXES
- New tax rate of 26.5% applying to corporate income above $5M
- Reduce foreign tax credit to 5%
- NOLs (Net Operating Losses) only good for 5 years ahead (was 20 years), and NO carrybacks
- Interest expense deduction to be limited.
OTHER TAXES
- R&D expenses now amortize over 5 years, NO more immediate deduction
- Limit deductions for executive payroll
- Increase of federal excise, tobacco, and vapor products (Cigarette packs $2.00 increase)
- Reinstate the Superfund tax on crude oil and gasoline products (+16.cents/gallon), double on chemicals
- Valuation rule changes on certain transfers on non-business assets
There is way too much to write about here, including the winners and losers. But I thought everyone deserved to see at least a summary of what appears to become law.
ECONOMIC EFFECTS OF THE HOUSE WAYS/MEANS PROPOSAL (BUILD-BACK BETTER?)
Reduction of GDP by 1.06 percent
Reduce long-term American income by 1.2 percent
Wage reductions by 6.8%
Job loss of 422,000 jobs
Effects from the Tax Foundation in D.C.
