Welcome to fall. We hope all of you are enjoying the coolish fall like temperatures and more comfortable nights. I always find that the swift transition from the lazy summer days to the busy fall for us CPAs comes quick and with a bang.
While I would like to report to everyone that KN+S is back operating in the office at full capacity, this currently is not the case. Due to the increase in the COVID Delta strain cases, we have delayed, a bit longer, the official opening of the office for most employees for now. There are a hardy core of us that come at sporadic times during the week, but for the most part, we have found we can continue to operate this way without a glitch in service. The one personal thing I miss most, though, is seeing all of you face to face and going to your offices. We are hoping that in the coming month or so, we can open the office and start welcoming our clients and friends back into the office as well.
Another change brewing currently that I am sure you have read about is the bill proposed by the House Ways and Means Committee that has the full support of the democrats there and represents a staggering $871 billion in tax increases over the coming years. While none of the proposals are final, here are a few highlights that we believe may just be in the final bill:
- Increase to the top marginal individual tax rate back to 39.6% from 37% (after 12/31/21).
- Increase in the capital gains rates for those in the highest bracket to 25% rather than 20% (after 12/31/21). Keep in mind that the net investment income tax adds another 3.8%, so you could be looking at a federal capital gains rate of 28.8%, and an additional 5% for Massachusetts.
- A brand new tax surcharge of 3% for high-income individuals, trusts and estates. The tax is applied to A.G.I in excess of $100,000 for any trust or estate, $2.5 million for married individuals filing separately and $5 million for any other taxpayer (after 12/31/21).
- Changes to grantor trust benefits that will now require grantor trusts to be included in the grantor’s estate. In addition, as of December 31, the gift and estate exemption will drop from $11.7 million per person to $5 million per person. As a result, we expect a flurry of estate planning to happen between now and the end of the year
- Changes to IRA contribution rules and required minimum distribution rules will be enacted (after 12/31/21) to require those with more than $10 million in retirement assets to distribute approximately 50% of the amount in excess of the $10 million threshold to the taxpayer. In addition, the rules will close the back door Roth conversion play that some of our clients have taken advantage of over the years.
- Changes to the corporate income tax rates from a flat 21% to 18% on the first $400,000 of income. Between $400,000 and $5 million, the rate of 21% remains, but over $5 million, the corporation will be taxed at 26.5% (after 12/31/2021).
- One move that took many of us by surprise, are substantial changes to the Qualified Small Business Stock sale rules (QSBS or 1202 code section). Now, instead of the 100% exemption on the sale, if a taxpayer has more than $400,000 in AGI, they will only get a 50% exemption on the sale. This will be for sales that occur after 9/13/2021.
- A new 199A limit on the 20% qualified business income deduction for flow-through entities to $500,000, on a jointly filed return.
There are many, many other changes in the 881 page draft bill, and KN+S is sure that the final bill, if and when signed, will be different than some of these items above. But suffice it to say, change is coming, and most likely, taxes are increasing for all of us. Look to future news from KN+S on tax changes and a year-end tax planning seminar coming in the fall once the bill passes from us.
Remember, change is good. Right?
We wish you continued health and appreciate your support of KN+S. We look forward to seeing you soon and getting some normalcy back in all of our lives.
Jeffrey Solomon, CPA, CVA, Managing Shareholder at Katz, Nannis + Solomon, P.C. If you have any questions or would like to speak with one of our tax professionals, please contact our office at 781-453-8700.