Well, so much for a quiet September when it comes to taxes. I guess we knew it was going to happen eventually. I am referring to the introduction of POTENTIAL tax changes. Potential is emphasized as this is a starting point. This is what was released by the House Ways and Means Committee. And it is known as the American Families Plan. I am hopeful some of the items in this proposal never make it to actual law, but we will see.
With that background, I am going to bullet-point some of the highlights as I see them. And these are in no specific order. Also, not comprehensive. Let’s get to it.
- Single filers and Married Filing Jointly (MFJ) with respective incomes below $400,000 and $450,000 seem to be safe from any income tax changes…right now.
- This is lower than what President Biden suggested so my bet is this will increase once it hits the Senate. But, and this is a big but, the President does not write legislation.
- Tax rates go from 37% to 39.6%. The 37% bracket will go away.
- The 32% and 35% brackets are being compressed.
- Capital Gains rates for these income levels will increase to 25% from 20%. The 20% bracket will go away for Capital Gains.
- The Capital Gains rates changes go into effect immediately as of the day this legislation was proposed (This is the first item I don’t see making it past the final version, but what do I know).
- Also, the proposed Cap Gains rate is lower than what the President proposed. Stay tuned on this one too.
Finally, a quick mention of things not in this version of the bill.
- No elimination of the Step-Up in Basis. This is something the President wanted.
- No changes in SALT cap. I bet this does go up in the final version.
- No additional funding for Social Security.
- No wealth tax. You know, the stuff that would apply to people like Jeff Bezos who are worth billions but can go years without paying income tax. Although many of us would love to see something like this as opposed to just going after those with actual income, odds are it would be considered unconstitutional.
Again, I want to stress this is just proposed at this point. The final form will look different, however, many of the features will become law. I do expect something to be finalized and signed this calendar year. Honestly, most of the changes will have little to no impact to most people as they are below the income thresholds and don’t do things like Backdoor Roths and Roth Conversions.
I do hope your CFP® is on top of things and talking to you about it, not just sending some prepackaged narrative created by someone who knows nothing about your personal situation. I know I already am with my clients. Heck, this went out to my clients several days ago. There are advantages to being a client😊