Key Takeaways from the Presidents’ Tax Proposals

Dear Clients & Friends, 

The dust has finally settled on this year’s extended tax season, and as tax professionals, we continue to set our attention on helping you plan for the future. After what has been a challenging year for millions of Americans, the question remains as to what the government will do to help the economy recover and how taxpayers can best plan to optimize their financial success. 

Now that the President has revealed the American Families Plan, the position is much clearer in terms of what individual taxpayers can expect. The big picture is that there are tax breaks for those earning less than $400,000 per year and tax increases for those earning more than that amount. 

Specifically, the American Families Plan would extend American Rescue Plan Act’s (ARPA) increases to the Child Tax Credit through to 2025. For eligible taxpayers, the credit for each child will remain $3,600 per child under six and $3,000 per child under age eighteen. Additionally, this credit is fully refundable.

The plan would also make permanent ARPA’s increases to the Dependent Care Credit along with the expanded Premium Tax Credit available to many taxpayers enrolled on the market exchange- lowering plan premiums for those eligible. Finally, the plan would also make permanent ARPA’s expansion of the Earned Income Tax Credit, which roughly tripled for childless workers.

On the other side of the ledger, if passed, tax provisions in the American Families Plan designed to increase taxes would include:

• Restore the top tax bracket to 39.6 percent.
• Increase the tax rate on capital gains from a maximum of 20 percent to parity with income tax at 39.6 percent for households making over $1 million.
• Reduce the ‘step-up basis’ for some taxpayers making over $1 million, with protections planned to exempt family-owned businesses and farms being taken over by heirs.
• Limit deferred capital gains taxes for like-kind exchanges by capping the benefit at $500,000.
• Close loopholes to ensure:
  • Income from pass-through businesses making over $400,000 are subject to the 3.8 percent Net Investment Income tax.
  • Carried interest is taxed at ordinary income rates instead of capital gains rates. 

While we can’t predict if Congress will approve this provision, it still gives a clear indication of what may be coming down the pipeline and what we will consider alongside your future tax planning strategies. Whether you are an existing client or not, we are on hand to help you understand what the American Families Plan could mean for you and how we can help you start planning now to create more stability for your future. 

Stay safe & healthy, 

The CJBS Team