This week Democrats on the House Ways and Means Committee voted to advance dozens of proposed tax changes. Some are tax increases that would raise more than $2 trillion of revenue to help fund the party’s priorities.

The final shape of the bill and the fate of specific provisions are far from clear. Democrats have a slim majority in the House and a slimmer one in the Senate, while Republicans are almost uniformly opposed to the changes. Further wrangling could come on the House floor, and then the Senate gets its shot.

As a result, key provisions not in the current version—such as an expanded deduction for state and local taxes (SALT), or required reporting of taxpayer bank-account information to the Internal Revenue Service—could still surface.



This much is clear: Once a proposal is “in play,” especially if there’s legislative language and a revenue estimate, its chances of passage grow. Even if it fails in the short run, it could re-emerge in the future.

It’s also unlikely that effective dates will be earlier than those listed in the bill, which for many provisions is Jan. 1, 2022. A notable exception is a proposed increase in the top rate on long-term capital gains, which would apply as of Sept. 13, 2021.

The Ways and Means provisions would raise the top rate on these gains to 28.8%, from 23.8%, for married joint filers with taxable income above $450,000 and single filers above $400,000. There would also be a 3-percentage-point surcharge for many filers with adjusted gross income above $5 million starting in 2022.

Warning: The new $450,000 and $400,000 thresholds are much lower than the current ones of about $502,000 for joint filers and $446,000 for single filers. The provision would apply to investors with one-time windfalls, such as people selling a home with a large taxable gain, as well as to taxpayers who are typically high earners.

While it will be hard to strategize for higher capital-gains rates, the 2022 start dates for other tax increases provide room for planning. Here are moves for a range of taxpayers to consider.

Accelerate ordinary income
Higher earners may want to pull some of next year’s income into this year to avoid higher rates proposed for 2022.

The Ways and Means provision would raise the top rate on ordinary income like wages or bonuses to 39.6% from 37%. Like the increase in the capital-gains rate, the change would apply above $450,000 of taxable income for joint filers and $400,000 for single filers. These brackets also kick in well below the current top rate, which begins at about $628,000 for joint filers and $524,000 for single filers.


Dustin Stamper, who monitors national tax developments at Grant Thornton, notes that the lower thresholds of the Ways and Means proposals could mean some filers who aren’t in the top bracket this year will be next year. For example, a married couple with $500,000 of taxable income would have a top rate of 35% for 2020—but 39.6% for 2022.

A new limit would also apply to the 199A deduction for pass-through business owners. This break allows sole proprietors and owners of partnerships, S corporations and similar entities to take a deduction of up to 20% of business income reported on their personal returns.

The proposed limit sets the maximum deduction at $500,000 for joint returns and $400,000 for single filers starting next year—so high-earning business owners might benefit from accelerating income into 2021.

Defer deductions
If top tax rates rise next year, tax deductions would likely be more valuable to those with higher rates. Mr. Stamper suggests considering whether to postpone deductions for charitable donations, deductible medical expenses and—especially—state and local taxes into next year.

If Congress expands the SALT limit of $10,000 per return, SALT payments that aren’t deductible this year might be allowed next year.

Make Roth IRA conversions—in some cases
Several Ways and Means proposals would impose new limits on saving in retirement accounts, starting in 2022. One would force payouts from accounts over $10 million—but most savers won’t face this issue.

Another would limit Roth IRA conversions to joint filers with $450,000 or less of taxable income and single filers with $400,000 or less. In a Roth conversion, a saver typically transfers assets from a traditional IRA to a Roth IRA and pays income tax on the switch. In return, payouts from the Roth IRA can be tax-free and often there are no required withdrawals during the owner’s life—unlike with traditional IRAs.

Yet the proposed limit wouldn’t take effect until 2032—so even very high-earning taxpayers have time to do Roth conversions.

“Congress still wants the conversion taxes from high earners, so they delayed the effective date for 10 years,” says IRA specialist Ed Slott.

However, another provision would prohibit savers with traditional IRAs and workplace plans like 401(k)s from switching after-tax savings in these accounts to Roth IRAs. Savers doing these “backdoor” conversions may want to maximize them this year, as it could be the last year to do so.

Do cryptocurrency wash sales
The tax law allows investors to use capital losses from their duds to offset capital gains on winners—unless they incur a “wash sale” by purchasing the same asset 30 days before or after the sale. In that case, the tax break is reduced.



The wash-sale rules don’t apply to cryptocurrencies under current law. So crypto investors have been free to sell losers, repurchase them immediately, and use the losses to offset capital gains (plus $3,000 of ordinary income like wages). The provision would extend the wash-sale rules to cryptocurrencies and other digital assets, and to commodities and currencies as well, beginning in 2022.

Jordan Bass, a CPA and attorney with Taxing Cryptocurrency, is advising clients to sell crypto losers before year-end. “That way they can still repurchase if they want to without triggering wash sales,” he says.

Give money away
Another provision would drop the lifetime gift-and-estate-tax exemption to about $6 million per individual, indexed for inflation, compared with this year’s exemption of $11.7 million.

The provision would take effect in 2022. Estate planners are reminding affected clients they can use this year’s $11.7 million exemption to give money to heirs (or trusts for them) without fear it will be clawed back if the exemption drops.

Ed Zollars, a CPA with Kaplan Financial Education who teaches tax professionals about changes in the law, notes that people who die in 2021 also won’t be affected if the exemption shrinks.

But dying, he says, is “not a popular strategy with clients.”



LINK: This week Democrats on the House Ways and Means Committee voted to advance dozens of proposed tax changes. Some are tax increases that would raise more than $2 trillion of revenue to help fund the party’s priorities.

The final shape of the bill and the fate of specific provisions are far from clear. Democrats have a slim majority in the House and a slimmer one in the Senate, while Republicans are almost uniformly opposed to the changes. Further wrangling could come on the House floor, and then the Senate gets its shot.

As a result, key provisions not in the current version—such as an expanded deduction for state and local taxes (SALT), or required reporting of taxpayer bank-account information to the Internal Revenue Service—could still surface.



This much is clear: Once a proposal is “in play,” especially if there’s legislative language and a revenue estimate, its chances of passage grow. Even if it fails in the short run, it could re-emerge in the future.

It’s also unlikely that effective dates will be earlier than those listed in the bill, which for many provisions is Jan. 1, 2022. A notable exception is a proposed increase in the top rate on long-term capital gains, which would apply as of Sept. 13, 2021.

The Ways and Means provisions would raise the top rate on these gains to 28.8%, from 23.8%, for married joint filers with taxable income above $450,000 and single filers above $400,000. There would also be a 3-percentage-point surcharge for many filers with adjusted gross income above $5 million starting in 2022.

Warning: The new $450,000 and $400,000 thresholds are much lower than the current ones of about $502,000 for joint filers and $446,000 for single filers. The provision would apply to investors with one-time windfalls, such as people selling a home with a large taxable gain, as well as to taxpayers who are typically high earners.

While it will be hard to strategize for higher capital-gains rates, the 2022 start dates for other tax increases provide room for planning. Here are moves for a range of taxpayers to consider.

Accelerate ordinary income
Higher earners may want to pull some of next year’s income into this year to avoid higher rates proposed for 2022.

The Ways and Means provision would raise the top rate on ordinary income like wages or bonuses to 39.6% from 37%. Like the increase in the capital-gains rate, the change would apply above $450,000 of taxable income for joint filers and $400,000 for single filers. These brackets also kick in well below the current top rate, which begins at about $628,000 for joint filers and $524,000 for single filers.



The IRS’s 11 Million ‘Math Error’ Notices September 3, 2021
Quirks in a U.S. Treaty With Malta Turn Into a Tax Play for the Rich August 20, 2021
Your Child Tax Credit Payment Just Arrived. Are You Sure You Want It? July 15, 2021
What Peter Thiel’s Roth IRA Means for Yours July 2, 2021
Dustin Stamper, who monitors national tax developments at Grant Thornton, notes that the lower thresholds of the Ways and Means proposals could mean some filers who aren’t in the top bracket this year will be next year. For example, a married couple with $500,000 of taxable income would have a top rate of 35% for 2020—but 39.6% for 2022.

A new limit would also apply to the 199A deduction for pass-through business owners. This break allows sole proprietors and owners of partnerships, S corporations and similar entities to take a deduction of up to 20% of business income reported on their personal returns.

The proposed limit sets the maximum deduction at $500,000 for joint returns and $400,000 for single filers starting next year—so high-earning business owners might benefit from accelerating income into 2021.

Defer deductions
If top tax rates rise next year, tax deductions would likely be more valuable to those with higher rates. Mr. Stamper suggests considering whether to postpone deductions for charitable donations, deductible medical expenses and—especially—state and local taxes into next year.

If Congress expands the SALT limit of $10,000 per return, SALT payments that aren’t deductible this year might be allowed next year.

Make Roth IRA conversions—in some cases
Several Ways and Means proposals would impose new limits on saving in retirement accounts, starting in 2022. One would force payouts from accounts over $10 million—but most savers won’t face this issue.

Another would limit Roth IRA conversions to joint filers with $450,000 or less of taxable income and single filers with $400,000 or less. In a Roth conversion, a saver typically transfers assets from a traditional IRA to a Roth IRA and pays income tax on the switch. In return, payouts from the Roth IRA can be tax-free and often there are no required withdrawals during the owner’s life—unlike with traditional IRAs.

Yet the proposed limit wouldn’t take effect until 2032—so even very high-earning taxpayers have time to do Roth conversions.

“Congress still wants the conversion taxes from high earners, so they delayed the effective date for 10 years,” says IRA specialist Ed Slott.

However, another provision would prohibit savers with traditional IRAs and workplace plans like 401(k)s from switching after-tax savings in these accounts to Roth IRAs. Savers doing these “backdoor” conversions may want to maximize them this year, as it could be the last year to do so.

Do cryptocurrency wash sales
The tax law allows investors to use capital losses from their duds to offset capital gains on winners—unless they incur a “wash sale” by purchasing the same asset 30 days before or after the sale. In that case, the tax break is reduced.



The wash-sale rules don’t apply to cryptocurrencies under current law. So crypto investors have been free to sell losers, repurchase them immediately, and use the losses to offset capital gains (plus $3,000 of ordinary income like wages). The provision would extend the wash-sale rules to cryptocurrencies and other digital assets, and to commodities and currencies as well, beginning in 2022.

Jordan Bass, a CPA and attorney with Taxing Cryptocurrency, is advising clients to sell crypto losers before year-end. “That way they can still repurchase if they want to without triggering wash sales,” he says.

Give money away
Another provision would drop the lifetime gift-and-estate-tax exemption to about $6 million per individual, indexed for inflation, compared with this year’s exemption of $11.7 million.

The provision would take effect in 2022. Estate planners are reminding affected clients they can use this year’s $11.7 million exemption to give money to heirs (or trusts for them) without fear it will be clawed back if the exemption drops.

Ed Zollars, a CPA with Kaplan Financial Education who teaches tax professionals about changes in the law, notes that people who die in 2021 also won’t be affected if the exemption shrinks.

But dying, he says, is “not a popular strategy with clients.”

Write to Laura Saunders at laura.saunders@wsj.com

Copyright ©2021 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8
Appeared in the September 18, 2021, print edition as 'Your Tax To-Do List.'

LINK: https://www.wsj.com/articles/d...sjhp_columnists_pos1

quote:

Democrats Want to Raise Taxes. Here’s Your To-Do List.

I didn't see anything mentioned having to do with tar, feathers or pitchforks...maybe this was an early draft?

IMO, if you believe the 400 ~ 450K threshold makes you immune as a "regular Joe of moderate income", I have a bridge to sell you!

Coming soon to EVERY taxpayer.

I had an Inherited IRA from my mom this year, no big whoop 24K. I decided to take it directly and pay today's tax rate on it rather than rolling it into an Inherited IRA with forced distributions and higher tax rates.

biden is the ruin of us all.

quote:

Originally posted by Snapping Twig:
IMO, if you believe the 400 ~ 450K threshold makes you immune as a "regular Joe of moderate income", I have a bridge to sell you!

Coming soon to EVERY taxpayer.

No doubt. Do you think the people who own the businesses that put them in that tax bracket won't pass it on to their employees in the form of stagnant wages, worse healthcare coverage or many other ways? It will also be passed on to the customers buying whatever they sell.

Sure it's not a direct tax to the middle class but it's the same thing if your money will no longer go as far.

Do you think they believe their own b.s.?

They won’t be happy until they get every penny and then dole out what they think you need.

quote:

Originally posted by 1s1k:
No doubt. Do you think the people who own the businesses that put them in that tax bracket won't pass it on to their employees in the form of stagnant wages, worse healthcare coverage or many other ways? It will also be passed on to the customers buying whatever they sell.

Sure it's not a direct tax to the middle class but it's the same thing if your money will no longer go as far.

Do you think they believe their own b.s.?

That's pretty obvious to me.

When I owned my business, any new tax, fee, fine or whatever that was imposed on my business was passed on to the American Taxpayer. I wasn't about to take a pay cut because some Democrats want to give more to the welfare rats.

quote:

Originally posted by 1s1k:

quote:

Originally posted by Snapping Twig:
IMO, if you believe the 400 ~ 450K threshold makes you immune as a "regular Joe of moderate income", I have a bridge to sell you!

Coming soon to EVERY taxpayer.

No doubt. Do you think the people who own the businesses that put them in that tax bracket won't pass it on to their employees in the form of stagnant wages, worse healthcare coverage or many other ways? It will also be passed on to the customers buying whatever they sell.

Sure it's not a direct tax to the middle class but it's the same thing if your money will no longer go as far.

Do you think they believe their own b.s.?

I guess it depends on the employer. My experience has been that if you take care of your people, your people take care of you. If it gets to the point where I can’t pass the costs on to the customers, then something has to move, but it would never be a first choice to not take care of employees.

If you offer professional services to the public it is difficult to pass on the costs. A Covid surcharge does not go over very well. If the government dictates your fee maximums things are even more difficult.

AOC went to the Met Gala wearing a dress with “Tax The Rich” painted on the back. As luck would have it her behind was big enough to handle all the words.

I have a 10,000 word limit on giving a crap.

Cutting the death tax exemption in half, in a period of rampant inflation should bother anyone.

I already pay 2/3-3/4 of my income in taxes. Now, the pittance I do get to keep, will be cut in half…. Hardly seems worth working.

^^^^^^^^^^^^^^
Maybe we should let Joe Two Scoops know there will be an ice cream shortage. He might care about that.

quote:

Originally posted by joel9507:

quote:

Democrats Want to Raise Taxes. Here’s Your To-Do List.

I didn't see anything mentioned having to do with tar, feathers or pitchforks...maybe this was an early draft?

You beat me to that!

@ZMichael, both parties will think it’s a plus. Less competition for their Corp. cronies when small businesses owners quit.

The WSJ article is very helpful.
Of note are several things on Biden's list so far NOT included:
1. Ending 1031 exchanges
2. Ending the step-up in basis
Those two items together, if included in the bill, will end many families' attempts to pass on significant wealth to their heirs.

Guess I'd better stay alive until another Republican president and Congress, and they'd better not act like Congress did under Trump, the bastards!

Do what the rich including Congress do, hide it.

quote:

Originally posted by Leemur:
They won’t be happy until they get every penny and then dole out what they think you need.

"You will own nothing and be happy!"
-- Klaus Schwab, WEF

https://www.armstrongeconomics...nothing-in-10-years/

OK Klaus, you first. Give away all of your $1.1 billion.

Barring than that, eat a giant bag of dicks

quote:

Originally posted by ChuckWall:

quote:

Originally posted by Leemur:
They won’t be happy until they get every penny and then dole out what they think you need.

"You will own nothing and be happy!"
-- Klaus Schwab, WEF

https://www.armstrongeconomics...nothing-in-10-years/

The Government is worse than a wife. They got all the power, they got half the money, now they're working on getting the other half.


-Gordon Gekko