Under this bill, which has not yet passed:
- Tax brackets would not change.
- Capital gains tax rates would not change.
- The back door Roth would remain in effect.
- Estate tax rules would not change.
The changes to current tax laws that do remain in the bill include the following:
S Corp surtax: The bill retains a new 3.8% phased-in surtax for S Corporation owners with income over $400,000 single and $500,000 married. For S Corporation owners, year-end tax planning with your accountant and financial advisor will be key in 2021 and likely going forward.
High income surtaxes: Taxpayers will be assessed a 5% surtax on all income (ordinary or capital gains) over $10 million, and an additional 3% surtax on income over $25 million.
Small business stock: 100% of the gains on qualified small business stock (QSBS) acquired after Sept. 27, 2010, are currently excluded from taxable income. The bill would reduce the exclusion to 50% for people with more than $400,000 annual income, as well as for trusts and estates.
Corporate taxes: Corporations would pay a 15% minimum tax on income over $1 billion over a consecutive three-year period. They would also face a new 1% excise tax on publicly traded U.S. corporations for the value of its stock that the corporation repurchases during the taxable year.
Of course, let us or your CPA know if you have questions about the proposed legislation or how it might apply to you. As you likely already surmise, the bill is a work in process. More changes may come.
Laura is a Senior Wealth Manager and the Founder of LWP. She has a master’s degree in tax and is an excellent listener. While she is a sophisticated financial planner with experience in complex issues, her priority is ensuring a financial plan works for people.