President Joseph Biden’s 2022 Budget Proposal includes two plans that will directly impact taxpayers throughout the country: the American Jobs Plan and American Families Plan. The following will discuss some of the basics of these plans and how they would impact both personal and business tax returns if the proposals move forward.
Personal income tax returns
Those earning over $452,700 as single or $509,300 as joint filers would get a bigger tax bill. This is because the American Families Plan as currently written would increase the tax rate for this group from 37% to 39.6%.
Some taxpayers would also experience an increase in the tax applied to capital gains and qualified dividends.
Business tax returns
The American Families Plan would expand the Net Investment Income Tax (NIIT) to 3.8% for businesses that operate with a pass-through business tax. This would impact partnerships, S-corporations, limited liability companies (LLCs), and sole proprietorships that have an income over $400,000. It would also make the current limitation on pass-through business losses permanent.
The American Jobs Plan would increase the federal corporate income tax rate by 7%, going up to 28% from the current 21%.
Increased regulation and enforcement
The proposed changes also result in increased funding for the IRS. Advocates for the proposal explain that this will likely lead to more funding for enforcement efforts as well as increased reporting requirements for financial institutions. This will translate to greater enforcement efforts for both individual and business returns.
What does this mean?
Businesses and high-net worth individuals are wise to see this as a wake-up call. If you have not yet started exploring legitimate tax mitigation strategies, now is the time. The attorneys at Goldburd McCone can review your situation and provide guidance on options that can help reduce your tax burden.