On April 28, 2021, President Biden announced the American
Families plan to propose funding for education, childcare, and education
Extension of certain tax credits for low and middle income people
Individuals. The White House published an information sheet describing these proposals
President Biden discussed them in an address to a joint meeting of
Congress. President Biden's plan would fund these proposals
due to increased taxes and other significant changes in tax law.
These changes would be in addition to the proposed tax changes
in the American employment plan announced by President Biden on March 31
2021, which we covered here.
It remains to be seen whether the proposals in the
American Families Plan is in place, they levy one
Number of issues that taxpayers need to consider and plan for
Anticipating future IRS audits.
Increased enforcement
President Biden's plan provides for an increase in funding for
Enforcement focusing on "large corporations, corporations,
and estates and people with higher incomes. "A press release from the Ministry of
The Ministry of Finance advises that this proposal would require an additional claim
$ 80 billion over the next decade to fund IRS priorities, including
Recruitment, training and technological improvements. This follows comments made by the IRS commissioner last week
Chuck Rettig on the IRS's "tax cut" plans
Gap "between the amount of tax that taxpayers owe for a given period of time
Year and the amount actually paid on time.
Advanced reporting requirements for information
The administration also previewed the expanded information reporting
Requirements from financial institutions on "account
flows. "The fact sheet quoted a 2019 economic paper
broadly critical of a lack of bipartisan reporting regarding
certain items of income, but the text of the proposal only relates
extended reporting for "financial institutions".
According to the Treasury Department press release, this is
Proposal "uses the information that is financial
Institutions are already familiar with account holders and only need them
that they add information on to their regular annual reports
aggregated account outflows and inflows. "
Increase in the top income tax rate on ordinary income for
Individual taxpayers to 39.6 percent
President Biden's plan would increase the highest income tax
Tax rate for the ordinary income of individual taxpayers from 37 percent to
39.6 percent. This proposed increase would reset the rate to what
It was before the 2017 Tax Cuts and Jobs Act. Under current conditions
According to law, the 37 percent rate applies to individual taxpayers
with income greater than $ 523,600 in 2021 and to married couples
joint filing with incomes greater than $ 628,300 in 2021. It has
It has been reported that the rate of 39.6
Plan would apply to single individual taxpayers with income
more than $ 452,700 and to married couples co-filing
Income over $ 509,300. President Biden's plan does not provide for that
specifically provide for an increase in tax rates for lower taxes
Brackets.
Eliminate lower tax rates that apply over the long term
Capital gains from high income individuals
The American Families Plan suggests raising the top franchise
Income tax rate for long-term capital gains of 20% (plus 3.8%)
Medicare tax) to 39.6% (plus 3.8% Medicare tax) for households with
Income greater than $ 1 million per year. The suggestion would too
Similarly, increase the qualifying dividend tax rate
Income and would tax interest income at ordinary income rates.
Baker Botts
Note: The proposed increase in the tax rate in the long run
Capital gains raise important considerations regarding
timed coordination. President Biden's plan is ineffective
Date. Assuming the Effective Date is prospective, taxpayers can
Make the decision to sell long-term investments before the interest rate hike
becomes effective. Taxpayers could also try to delay that
Realize losses until after the Effective Date if they can
offset against profits that would be subject to the increased tax
Rating. Under certain circumstances, e.g. B. if a stock or a security
Becoming worthless can lead to significant disputes between the
IRS and taxpayers as to when the loss was properly incurred. The
significant increase in the tax rate according to President Biden's plan,
coupled with increased enforcement budgets, this can result in a higher budget
Disputes about the right timing of losses.
Baker Botts
Note: For taxpayers who own qualified small ones
Business Stock (QSBS) increases the proposed tax rate increase
Importance of QSBS Considerations. Under current law, taxpayers can
be able to defer or permanently exclude some or all of the profits
the sale of QSBS on condition that they meet certain requirements. The
The value of this benefit increases with long-term performance
Capital Gain Rate. Taxpayers who may be eligible for QSBS
Treatment will want to take appropriate action to document this
You meet these requirements for preparing an audit.
Closing the "reinforced base gap" for
Property after death
Current law provides that a person who holds is valued
Real estate or other valued assets die, heirs who inherit
These assets are allowed to increase the tax base of the assets
at their then fair market value. The American family plan
suggests "filling this gap and ending the practice of
"Increase" the base for profits in excess of $ 1 million
($ 2.5 million per couple when combined with existing properties
Exceptions (e.g. exemption from main residence) and ensuring
Profits will be taxed if the property is not donated
Charity. "From the fact sheet it is not clear whether this means
that the increase in the base for such profits would be eliminated or
alternatively, that such gains would be taxed on death. A press release from the department for
Agriculture would like to point out that the proposal is the
unrealized capital gains (those that have never been before
taxed) to income tax on death. According to the proposal there would be
Protection "so that family businesses and farms
You don't have to pay taxes if passed on to heirs who the
Companies."
There was speculation that President Biden might
propose a change in estate tax, as the American Families Plan is doing
contain no such change.
Other tax changes
Other tax changes proposed in President Biden's plan
lock in:
- Elimination of the tax-deferred § 1031-like exchange
Treatment of capital gains over $ 500,000 - Extension of the permanent current restrictions to limit the deduction
of "excessive business losses" - 3.8% tax expansion on unearned income (sometimes referenced)
as Medicare tax) to unspecified income categories currently
not covered
Regulation of paid tax advisors
While CPAs, lawyers and other people who practice before
The IRS are already regulated, while other paid tax advisors are
are not. The Ministry of Finance's press release indicates that such
Unregulated tax advisors file more tax returns than anyone else
Preparers combined, but that "they make costly mistakes that
subject their customers to painful audits, sometimes even
Deliberately defrauding taxpayers for their own benefit. "
President Biden's plan is to give the IRS the right
Authority to supervise the paid tax advisor and for
stricter penalties for preparers who cannot identify themselves
Tax returns and taxpayer fraud.
We will continue to monitor and provide developments
More updates as more details are released.
Originally published May 3, 2021
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Guide to the subject. Expert advice should be sought
about your particular circumstances.