Broker Check

Proposed Tax Changes

September 28, 2021

 As we have been communicating for the better part of this year, tax changes are likely coming

Although no changes have yet been passed, in mid-September the House Ways & Means Committee released proposed legislation as part of the ongoing $3.5 trillion budget reconciliation process. Although the legislation appears to be less hard-hitting than what was originally talked about, if passed, it will change the tax and estate planning landscape for high-income and high-net worth individuals.  

Below is an overview of the tax proposals.


-Single filers with income below $400,000 and Married Filing Joint filers with income below $450,000 will likely not see significant impact right away. Taxpayers with income over those thresholds should expect higher.

-The top marginal income tax rate would increase from 37% to 39.6% for married individuals filing joint returns with taxable income over $450,000; single taxpayers with taxable income over $400,000; and married individuals filing separate returns with over $225,000. This increase would also apply to trusts and estates with taxable income over $12,500.

-The top capital gains tax rate for those same high-income taxpayers would increase from 20% to 25% for all sales and transactions closing after September 13, 2021.

- A new 3% surtax on modified adjusted gross income over $5 million for single individuals, heads of household, married couples filing jointly, and surviving spouses. The surtax would kick in at $2.5 million for married couples filing separately.

- A $10 million limit would apply to Individual Retirement Accounts (IRAs) contributions—allowing for no further contributions for married couples with taxable income over $450,000 or singles with taxable income over $400,000. The $10 million threshold would also accelerate required minimum distributions for those accounts.

- The proposal would also disallow the so-called “back-door” Roth IRAs by eliminating conversions for IRAs and 401(k) plans for single filers making over $400,000, head of household filers above $425,000, and for joint filers reporting more than $450,000.

- The deduction for qualified business income would be amended by setting a cap on allowable deductions at $500,000 for individuals filing a joint return; $250,000 for a married individual filing a separate return; and, $10,000 for a trust or estate.

- The temporary expansion of the child tax credit—and advanced payments—would be extended through 2025. Additionally, changes to the Earned Income Tax Credit (EITC) and the Child and Dependent Care Tax Credit (CDCTC) would become permanent.

- Wash sale rules modified to include commodities, currencies, and digital assets.


-Top corporate tax rate would increase to 26.5% from 21% for corporate income above $5 million. The 2017 law cut the rate for large corporations from 35% to 21%. The tax rate drops to 18% for small businesses with income less than $400,000 and would remain 21% for all other businesses.

- Section 199A pass-through deduction would be capped at $400,000 for single filers, $500,000 for joint filers, $250,000 for married couples filing separately, and $10,000 for a trust or estate.

- 3.8% Net Investment Income Tax, or NIIT, would apply to net investment income derived in the ordinary course of a trade or business for single taxpayers making more than $400,000 in taxable income and $500,000 for married couples filing jointly. It’s worth noting that the NIIT does not apply to wages already covered by FICA.

- Eligible S corporations—those organized on May 13, 1996, before the current-law the-box regulations—would be allowed to reorganize as partnerships without triggering a tax.

- Permanently disallows excess business losses—net business deductions in excess of business income—for non corporate taxpayers.


-The federal estate tax exclusion amount would be reduced to $6,020,000 in 2022 from $11,700,000 in 2021.

-Valuation discounts for transfers of non-business assets would be eliminated.

-Two key estate planning techniques would be significantly altered: Grantor trusts would be included in the grantor’s estate, and distributions from grantor trusts would be treated as taxable gifts. And, sales to intentionally defective grantor trusts (IDGTs) would be eliminated.

Our team at Platania Financial will continue to monitor these proposed tax changes. In the meantime, we encourage you to determine your 2021 marginal tax rate and consider what it may be under the new tax proposal. In addition, Jim and I are happy to help you consider year-end tax planning strategies if you're looking for someone to speak with.




Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. Platania Financial and LPL Financial do not provide tax and legal advice or services. Please consult your tax or legal advisor regarding your specific situation.