Updated 7-1-2021

Update on 2021 Tax Law Changes
And what you can do now

 



This text covers some important tax law changes and gives a breakdown of the Biden administration goals as it relates to tax laws.  (some have been passed and some have not. It depends on each individual or business situation if they will impact you positively or negatively)
 

The 3 Part Plan:   Build Back Better Plan


There are 3 parts to this plan covered below.    The first portion was passed earlier in 2021, and the 2 remaining pieces that are still being negotiated.

BEFORE you dive in:  while we don't recommend that you immediately jump to a conclusion or decision while the law changes are uncertain,  we think it is EXTREMELY important to plan and strategize now about what could be done if some of these laws are passed.   Some additional planning could potentially save an enormous amount of money depending on your situation.         

As a quick reference, and some ways to think about strategy:      For example,  if the Corporate tax rate jumped up by 7%, that could change the benefit of the entity structuring you have in place, and we may want to discuss converting to a different entity type.  Or if Capital Gains (when over $1 million of income)  really do become taxable at the highest tax rate of 43.4 % compared to the current 23.8% at the highest rates it might make sense to realize some gains this year compared to a future year where the rate could be 20% higher.     What could the end of a like kind exchange benefit (when over $500k) mean for your long term planning?  Acting now, or waiting to act, could become a key part of your long term wealth.


Here are the tax impact summaries of the 3 parts of the Build Back Better Plan.  If you need to schedule a strategy or consultation session for specific calculations, estimates, projections, or planning please feel free to contact the office or book through the scheduling link HERE

 

1. American Rescue Plan

  • Already passed earlier in 2021  (we sent an email in March providing additional information on this plan.  The text of that email and summary of the plan can be accessed HERE


 
2. American Jobs Plan

  • Not Passed – These are just the proposals for now.

 

  • Raise the federal statutory corporate tax rate from 21 percent to 28 percent. NOTE: Bement & Company is expecting that this portion of the corporate tax will not likely pass based on last week’s updates on a reconciliation process between Democrats and Republicans. But there are still potential changes (even 25% was part of the negotiations)

 

  • Raise the tax on Global Intangible Low Tax Income (GILTI) from 10.5 percent to 21 percent, calculate GILTI on a per-country basis, and eliminate the exemption of the first 10 percent return on foreign qualified business asset investment (QBAI).

 

  • Repeal the foreign derived intangible income (FDII) deduction.

 

  • Impose a 15 percent minimum tax on corporate book income for firms with over $2 billion in net income.

  • Replace the Base Erosion Anti-Abuse Tax (BEAT) with the Stopping Harmful Inversions and Ending Low-Tax Developments (SHIELD).

 

  • Increase taxation of foreign fossil fuel income.

 

  • Restrict deductions for domestic interest expense.

 

  • Remove tax deductions for offshoring jobs, offset with a credit for onshoring jobs.

 

  • Support research and development expenditures as an offset for repeal of FDII.

 

  • Support housing and infrastructure through expanded Low-Income Housing Tax Credit and other provisions.

 

  • Prioritize clean energy through repeal of fossil fuel tax preferences and various clean energy tax credits.

 

3. American Families Plan

  • Not Passed – These are just the proposals for now.

  • Raise the top marginal income tax rate from 37 percent to 39.6 percent, which would apply to income over $452,700 for single and head of household filers and $509,300 for joint filers.

 

  • Tax long-term capital gains and qualified dividends as ordinary income for taxpayers with taxable income above $1 million, resulting in a top marginal rate of 43.4 percent when including the new top marginal rate of 39.6 percent and the 3.8 percent Net Investment Income Tax (NIIT).

 

  • Tax unrealized gains at death for unrealized gains above $1 million ($2 million for joint filers, plus current law capital gains exclusion of $250,000/$500,000 for primary residences).

 

  •  $400,000. Limit 1031 Like-Kind Exchanges above $500,000 in deferred capital gains, end the preferred treatment of carried interest, and make permanent the 2017 tax law’s limitation on excess losses that applies to non-corporate income.

 

  • Extend the enhanced Child Tax Credit (CTC) in the American Rescue Plan Act (ARPA) through 2025, which provides $3,600 for children under age 6 and $3,000 for children ages 6 to 17 and phases out at a 5 percent rate beginning at $112,500 for head of household filers and $150,000 for joint filers. The credit amounts would not fall below what would be allowed in each year under current law.

 

  • Make permanent the American Rescue Plan Act changes that made the CTC fully refundable and expanded the Earned Income Tax Credit (EITC) and Child and Dependent Care Tax Credit (CDCTC).

 



As always, we appreciate working with and strategizing with you on what makes the most sense for your unique situation for your individual, business,  or investing plans and goals.    Please feel free to reach out to our office or to our team with questions, or if you need specific advice and strategy please schedule a time to discuss HERE