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Tax Increases and the Slowly Roasted Frog. . .
September 15, 2021   |   2021 Tax Season, Capital Gains, Editorial, Form 1040, IRS, Legislation, Retirement Accounts IRA/401K, Taxes

green from sitting on gray stone


An old parable indicates that a live frog will consent to being cooked if the heat is slowly increased. Seems that the same principle applies to taxes. Part of the Build Back Better Act of 2021 is being crafted in the House Ways and Means Committee. It’s not law yet, but the provisions discussed below are a slow roast of steady tax increases and a slow implementation of the wealth tax:

Class warfare increasing the taxes on the “rich” or those who make over $400,000 per year. Careful! If inflation continues the regular “Joe” may be making $400,000 a year just to keep up with inflation.  Secondly, many of the “rich” worked very hard to get where they are at. Doctors give ten years of their lives to prepare, similarly there is a long preparation time for teachers, lawyers, engineers. Shouldn’t they be compensated for their time, expertise and labor?  People balked at a wealth tax, but its being slowly phased in. List continues:

  1. Capital gains increased to 25% (currently as low as 0% for some taxpayers).  Want to sell stock? Be careful when and how much is sold; similar issues for sales of land or Rental Real Estate.
  2. Estate Tax exemption to revert to pre Trump Tax Cut and jobs act levels (5.4 million).   What about providing for your wife after you’re gone or leaving enough to pay the grandkids education (College costs are through the roof)?  What about the family farm? If don’t meet the provisions, more estates may be subject to tax.
  3. Also estate income tax rates increase to 39.6% for income over 12,500.  Think of Jr disabled on Medicaid with his special needs trust to cover his housing and special wheelchair. Taxpayers need to revisit their tax planning strategy or Uncle Sam could be the beneficiary. . .
  4. Retirement contributions restricted. No more Roth (after tax) 401K contributions allowed and no traditional to Roth conversions allowed. Forced distributions (=forced tax bill) if the account balance goes over 10 million and/or 20 million. Result: When retirement income is received, the TAX MAX COMETH. Why should the retirement account balance matter if it was EARNED legally? What’s to prevent the government from lowering the forced threshold distribution balance to 100,000 or 10,000? (answer= nothing!)
  5. Partners or  S Corp employee/owners be careful!  The NIIT is coming for you! The Net Investment Income Tax is an additional 3.8% tax on income over 225,000 for singles or $250,000 for married filing joint. Traditionally the income definition included wages, interest and dividends and non business capital gains. Now it may also include partnership and S corp income as well.  More people “caught” in the net=slimmer wallet more tax money for “Uncle Sam”
  6. Qualified Business Income deduction reduced when income goes over $400,000 no deduction when $500,000 or more.  So the busy doctor’s office may have to pay higher taxes . . .your small business owner (e.g. EMPLOYER) may have to pay more taxes. . .Cost flows down to patients and consumers, is that good economic policy?  Do we want life to get more expensive?

Some provisions (if become law), are retroactive to January 1, 2021. If don’t like these provisions:
Talk to your broker or tax pro about selling hard assets or doing a Roth Conversion NOW.

Talk to your US Representative NOW. for US House for US Senate  or switchboard: (202) 224-3121.  After the bill becomes law ITS TOO LATE

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