Proposed Tax Law Changes and You

The President and Congress are considering tax law changes in a number of important ways that may impact you, your business and your family. If a person waits until the changes become law, he or she will probably lose the opportunity to plan around them because they are effective immediately after they are signed or in some important instances, they are retroactive.

So, we think it is important for us all to be aware of what is being seriously considered so that we can plan and make changes if warranted, before the changes take effect and it is too late.

These are some of the important changes.

Estate Taxes

Currently, the federal estate tax exemption is nearly $24 million dollars for a married couple. The new law would cut that in half effective at the end of the year. There are ways of dealing with that, if you act before the end of the year.

Capital Gains

Currently, the top rate is 20%. The House bill would increase the highest rate to 25% for individuals earning more than $445,850 and married joint filers earning more than $501,600. It would be retroactive to September 13th unless the seller has a binding contract before that date.

Individual Income Tax Rates

The top tax rate would increase from 37% to 39.6% for individuals earning more than $400,000 and married couples filing jointly earning $450,000 or more.

Surtaxes and Limitations

There are new limits on pass through income (subchapter S corporations and LLC’s) and a 3% surtax on people lucky enough to earn more than $5 million (adjusted gross income).

Large Retirement Plans

People in the highest personal tax bracket could be hurt in three ways. New contributions to their retirement plans may be blocked, if there is more than $10 million in the plan at the end of the prior taxable year. Required minimum distributions are increased for those taxpayers. “Backdoor” Roth conversions would be prohibited for people in the top tax bracket.

Corporate Tax Rate

The proposal would increase the rate to 26.5% from 21%.

These are significant changes and as you can tell from the proposals, there are strategies you can employ now to decease the impact these proposed changes may have on you, your business and family.

But these are not easy decisions and cannot be made in a vacuum or hastily.

If any of these issues may impact you, please call us. We would be happy to help evaluate your situation and act quickly with you and your other advisors to lessen the impact that the changes may otherwise have on you.

Most importantly, we will help you with the analysis of whether there is a strategy that makes sense given that you might have to act before you know whether the law will be enacted.

We look forward to assisting you with these issues or with others at your convenience