Like the rest of the country, we have been waiting to learn what President Biden’s federal tax proposal will look like, and how it will impact individuals and businesses. On October 28, 2021 Biden announced a new version of the Build Back Better (BBB) framework that outlines spending provisions of $1.75 trillion over ten years, and revenue offsets of up to $2 trillion during that time period.
The latest Build Back Better framework is a revision of a framework previously proposed in September of this year. While the President was hopeful to have the House vote on the proposed BBB bill November 5th, Democratic leaders insisted that vote should only be held after the Congressional Budget Office (CBO) reports on what the total cost of the legislation would be and to ensure the proposed framework is fully paid for. The CBO is expected to take at least two weeks to finalize and complete its report on the cost of the proposed legislation.
While nothing is law yet, the newly proposed framework includes significant tax changes for individuals and businesses. Further changes may be forthcoming according to Democratic house leaders.
However, as we move toward the end of the year, it is wise to start thinking about tax planning, and how these potential federal changes may impact your tax saving strategies.
Below is a summary of a few of the key tax provisions in the latest Build Back Better framework.
- Corporate Profits Minimum Tax (CPMT). Corporations with profits greater than $1 billion will be subject to a 15% alternative minimum tax (AMT).
- Corporate Stock Buyback Surcharge. The proposed framework would impose a 1% surcharge on corporate stock buybacks.
- Global Intangible Low-Taxed Income (GILTI). The proposal would make several changes to the GILTI framework, most notably reducing the deduction for GILTI to 5%. GILTI would also be calculated on a country-by-country basis.
- Pass-Through Loss Limitation to Non-Corporate Taxpayers. The proposed framework would make the Tax Cuts and Jobs Act (TCJA) pass-through loss limitation permanent. It would disallow excess business losses, which would carry over to the following year.
- Research & Development (R&D) Credit Changes. The framework would increase the R&D credit small businesses can claim against their payroll tax liabilities and would delay the provision that requires amortization of R&D expenses to years beginning after Dec. 31, 2025, as opposed to the current effective date of Dec. 31, 2021.
- Millionaire Tax Surcharge. The new framework proposes a 5% tax surcharge on Modified Adjusted Gross Income (MAGI) above $10 million, plus 3% on MAGI above $25 million.
- Expands Reach of 3.8% Net Investment Income Tax (NIIT). As proposed, the framework would expand the 3.8% NIIT to include income earned in the ordinary course of business from pass-through entities (S-Corps, Partnerships/LLCs) for taxpayers with greater than $400,000 taxable income (single) or $500,000 (Joint).
- State and Local Tax (SALT) Deduction (a very last-minute proposed addition). The framework would raise the cap on the SALT deduction from $10,000 to $80,000, applying to the 2021 tax year and extending the cap through 2030. For 2031, the cap would be set to $10,000.
- Child Tax Credit. As proposed, the new framework would extend the American Rescue Plan Act’s (ARPA) expansion of the Child Tax Credit through 2022.
- Earned Income Tax Credit (EITC). The framework would also extend the ARPA’s expansion of the EITC through 2022, including eligibility, phase-in rates and amount.
- Limits on Sec. 1202 Small Business Stock Gains. The proposed framework would limit the 75% & 100% gain exclusion rates so they will not apply to taxpayers with AGI greater than $400,000.
- IRA Contributions. The framework would limit IRA contributions when balances reach $10 million, and would accelerate the required minimum distributions for those accounts.
These and other proposed changes could impact your tax saving strategies moving forward. As we keep an eye on any additional changes that may be to come, it would be wise to start thinking about tax planning and how the proposed framework may impact you or your business. If you have questions about the proposal, leave a comment below, or feel free to contact me directly. I’m happy to help!