Proposed Tax Changes for Top Earners

September 22, 2021

Dear Clients & Friends,  

The most widely discussed aspects under the American Families Plan (AFP) are the proposed tax increases, including those on long-term capital gains (LTCG) for high-income individuals. LTCG’s are the profits from the sale of any asset held over a year, such as stocks, land, a business, and cryptocurrency.  

If passed, the proposal would raise marginal rates to 39.6 percent on adjusted gross income (AGI) over $400K ($450K for married filing joint returns) and historically favorable top capital gains rates to 25 percent. Add to that the 3.8 percent Medicare tax, and the rate jumps to 28.8 percent for the top bracket. These higher rates will be effective as of September 13, 2021. 

What We Know About the AFP  

The AFP proposes to phase out the higher estate and gift tax exemption and revert it back to $5.85 million. Welcoming news for family-owned businesses and farms, heirs who continue to run those operations will be able to value the property for estate tax purposes on its actual use rather than the fair market value at inheritance.  

Other revenue-raising proposals focused on wealthy individuals to help the economy rebound from the effects of the pandemic include: 

  • Extend the holding period required for capital gains treatment on carried interest. 
  • Imposing a 3 percent tax on modified AGI over $5 million.  
  • Make permanent the 2017 tax law’s limitation on excess losses that apply to non-corporate income.  

How We Can Help You 

While we can’t predict whether the plan will pass Congress, as your trusted advisor, our best tip would be to consider other provisions and proactive strategies by year-end that can not only help set you up for success but also, avoid unpleasant surprises come tax time. Some of which include:  

  • Get your estate planning and/or transfer of wealth in order; 
  • Identify other opportunities based on tax law changes to reduce your tax liability. 

Stay tuned as we await additional key details from the administration on some of the revenue-raising proposals. In the meantime, we understand that every individual and/or business circumstance is unique; that’s why we have the tools and expertise to help you plan accordingly. So, whether you’d like us to create tax planning models unique to your situation or simply have questions about how the proposal could affect you, we are here to help. Feel free to contact us today! 

Stay safe & healthy,  

The CJBS Team