Earlier this week, the venerable House Ways and Means Committee published its proposed tax changes for the budget reconciliation bill. To say that the changes only increase taxes on the rich is frankly untrue.
There are parts of the proposal that would affect us all.
The top marginal income tax rate for 1040’s would change from 37% to 39.6% on MFJ returns over $450,000, HOH returns over $425,000 and Single returns above $400,000. Currently the 37% rate begins at much higher income levels.
Cap Gains rates would increase from 20% to 25% for the same income tax brackets.
The definition of Net Investment Income Tax, a 3.8% tax, is expanded to include net investment income derived from the ordinary course of business for higher income clients.
The Unified Estate Tax Credit would be reduced to $5M per individual. It is currently $11.7M. We’ve spent the last 20 year trying to increase the estate tax credit so that entrepreneurs would be able to give their businesses to subsequent generations without most of the business being sold off to pay estate taxes. With a stroke of a pen, we could lose over half of those gains.
The proposal limits the Qualified Business Income Deduction on higher income returns.
There’s also a new limit on business losses that permanently disallows losses for noncorporate taxpayers. That’s right. You heard it here first. If you’re a sole proprietor who loses money, you wouldn’t be able to deduct the loss.
The proposal ends the Paid Family Leave and Medical Leave credit for tax years beginning 2023 regardless of income.
Contributions to Roth and regular IRAs would end if the value of your account exceeded $10M. Roth Conversions would end for higher income taxpayers as well.
C Corp tax rates would go back to a graduated income tax system with rates beginning at 18% and ending at 26.5%.
It creates a new limitation on foreign company based sales and services income which is an obvious disincentive for foreign companies to come here and do things like employ people.
The proposal also includes tax changes that target cryptocurrency, imposing rules related to common control and wash sales.
This is just a few of the changes that would affect my readership and client base the most. There’s a lot more. I will probably be writing about this for a while.
Let me leave you with this.
These changes are just a proposal. Nothing has been signed into law or carved into stone. A lot would need to happen before any of this would go into effect, but they’re coming, my Brothers and Sisters.
I’ve never understood why they think it’s okay to take our money and give it to people who have done absolutely nothing to deserve it. What have these people done?
Did they go to college? Did they bust their hump in Grad School? Did they sit for and pass a mind-numbing two day exam to get letters behind their name?
Did they bet everything they owned and everything they would ever become on an idea and start a company? Have they ever dealt with unreasonable employees, irate customers, or failed suppliers? Have most of the people who are receiving our money ever paid one thin dime of income tax?
The answer is probably “no” all the way down the line, yet our politicians try to convince us that these people “deserve” our money?
If anything, it should be the other way around. They should give an incentive to the people entrepreneuring businesses who are creating jobs and a strong economy.
Don’t kid yourselves, my friends, they’re coming. And the only thing between them and your bank account is us.
We’re all going to get through this. Let’s get through it together.
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