If you’ve caught even a whiff of recent political news, you’re well aware congress is fighting it out over President Biden’s “Build Back Better” legislative proposal.
A broad-based framework, Build Back Better (BBB), addresses issues ranging from COVID relief to healthcare to social services + welfare to infrastructure development to climate change + related environmental concerns.
BBB discussions are technically on hiatus at the moment, pending several related votes in congress. And there’s a strong possibility the legislation will be divided into multiple bills. But regardless, some version of this legislation will move through the government and pass into law.
And as with all legislative packages (AKA Spending Bills), someone has to pony up the cash to cover the tab. And as usual, the bulk of this burden falls on taxpayers — Like you!
A fact that begs the prescient question: “How will Build Back Better affect my taxes?”
Well, let’s take a stab at answering this timely inquiry…
BBB’s Impact On Individual Income Taxes
Modified adjusted gross income (MAGI) surcharge — If your MAGI exceeds $10 million (not counting investment revenues), you’re now responsible for paying an additional 5% surcharge. And if your MAGI exceeds $25 million, you’ll pay yet another 3% surcharge.
American Rescue Plan Act (ARPA) Child Tax Credit (CTC) expansion extended — A popular $2,000 tax credit available to families with eligible dependant under 17 will be extended through 2022. Additionally, CTC will become permanently refundable.
Temporary expansion of the Earned Income Tax Credit (EITC) eligibility extended — A credit that primarily serves lower-income taxpayers, which grants a credit ranging from $1,502 to $6,728 (depending on your filing status + number of dependants), will be extended through 2022.
Individual Retirement Accounts (IRAs) contributions limits — IRA contributions are limited when accounts reach $10 million. And distribution requirements are accelerated after this mark, forcing account holders to take out more money more often. All of which counts as taxable income.
Increased cap on the state and local tax (SALT) deduction extended — The $10,000 cap imposed by 2017’s Tax Cuts and Jobs Act (TCJA) on deductions for state and local taxes (SALT) on federal income filing is raised to $80,000 and extended through 2030.
BBB’s Impact On Pass-Through Business Taxes
3.8 percent Net Investment Income Tax (NIIT) expanded — The NIIT, a 3.8% tax that applies to investment income such as capital gains, dividends, and rental property income, will be expanded to incorporate pass-through income businesses, which includes sole proprietorships, certain limited partnerships, S-Corps, and LLCs (Limited Liability Corporations).
Make the active pass-through loss limitation permanent — TCJA imposed business loss deductions limits — $500,000 for joint filers and $250,000 for individuals — will be made permanent.
BBB’s Impact On Corporate Taxes
15% minimum for tax on “book income ” for corporations with profits over $1 billion — Book income refers to the profits publicly reported to shareholders (rather than the profit margins adjusted for tax filing purposes).
1% excise tax of the value of stock repurchases during the same year — Stock buybacks are commonly used to alter or enhance the appearance of a company’s financial status and are also sometimes used to shelter income from taxation.
Questions On How Build Back Better May Impact Your Taxes?
Keep in mind, everything outlined above is still only in the “proposal” stage. It’s not only possible, but quite likely that significant portions of Build Back Better will be revised.
But if you have any preliminary concerns, I strongly encourage you to get in touch for your FREE consultation!