New Proposed Changes to Income and Estate Taxes

New Proposed Changes to Income and Estate Taxes

New proposals for the House tax bill were released on September 13, 2021. The proposals include changes to individual taxes, retirement accounts, estate tax, corporate tax, and more. Below, our legal team outlines some of these important changes. If you are uncertain how these changes will affect your estate, personal income, or business, please contact one of our skilled attorneys today.

What Changes are Applicable to Individual and Corporate Income Tax?

Among the most prominent changes proposed in the bill are those that affect income tax. The tax rate on the top individual incomes would increase from 37% to 39.6%, in addition to the top capital gains tax rate increasing from 20% to 25%. Additionally, the bill proposes that the Net Investment Income Tax now cover investment income coming from trade or business. There may also be a 3% increase on income tax greater than $2.5 million (if married filing separately), $5 million (for single filers and married joint filers), and $100,000 for trusts and estates. As for corporate income tax, there may be an increase of the top corporate tax rate from 21% to 26.5%.

What Changes Will Occur with Retirement Accounts and Estates?

Another notable set of proposed changes in the bill relates to retirement accounts and estate tax. For large retirement accounts with a value of $10 million or more, further contributions to a Roth or traditional IRA would be prohibited. Moreover, if the combined balance of someone’s traditional IRA, Roth IRA and defined contribution retirement accounts is over $10 million, they would have to withdraw at least 50% of the excess amount over $10 million. If the combined balance of these accounts is over $20 million, that person would have to withdraw the amount needed to bring the total value down to $20 million the following year, with an additional 50% for the amount between $10 to 20 million.

A single filer with an income greater than $400,000 or joint filers with a combined income of $450,000 would be unable to convert to a Roth IRA. Under the new bill, those with a certain level of assets and exclusive access to particular investments may no longer be able to hold these investments in IRAs.

Additionally, there may be rollbacks of the gift, estate, and goods and service tax lifetime exemptions. These would reverse from the current levels set in 2017 to the prior levels of $5 million set in 2010. Furthermore, when a grantor of an estate dies, trusts may be pulled back in for all future trusts, and distributions only from the life of the grantor would be made into gifts. Valuation discounts that are commonly used with estate planning transactions would also be eliminated.

Call an Estate Lawyer to Help You with These Changes

If you are curious about how these proposed changes may affect your personal estate plan, do not hesitate to contact one of our knowledgeable lawyers today. We are here to advise you on the potential changes to your income and corporate taxes, estate plan, and retirement accounts. Contact us today for more information.