What The House Version Might Mean For Taxes in 2021

On November 19, the DPR approved the proposed tax and fee reduction (BBB) ​​by just under 220 to 213 votes, almost entirely in line with the party’s political policies. According to the Office of Management and Budget, the bill would add $376 billion over a decade to the deficit. The analysis by the Office of Management and Budget did not take into account the estimated $127 billion additional tax revenue.

It will be interesting to see what happens in the Senate because this is just a house version of the bill. West Virginia Senator Joe Manchin appears to have the card. The current bill does not include changes to capital gains or personal tax rates, with the exception of high-income taxpayers, and appears to be much friendlier to most individual taxpayers and investors than previous proposals.

Below is a brief summary of some of the relevant tax provisions. The figures come from the CBO:

Minimum Book Income Tax: Part of this proposal, which may be referred to as the “Amazon Tax”, is to impose a minimum 15% tax on businesses with more than $1 billion in book income.

Accounting principles allow for a distinction between what is reported for accounting purposes and what is reported for tax purposes. This is mostly a time difference that requires companies to record deferred taxes. But the tax increase would add about $320 billion in tax revenue. This would reduce the cash flows of approximately 1,000 companies with accounting revenues greater than $1 billion.

Additional corporate repurchase tax: Share buybacks in 2021 are near 2018’s record levels. Typically, when a company buys back its shares, the share price rises, creating a form of dividend that is not currently taxed. Apple

Close the back. The BBB proposes an additional 1% tax on company acquisitions that could generate $125 billion in tax revenue. This can cool the strategy and delay the company’s valuation of aggressive repurchase plans.

Global Low Intangible Income Tax (GILTI): This is sometimes called the Apple Tax. This is because Apple is known for transferring intellectual property to Ireland at an incredible 2% tax rate. The BBB proposes to raise and increase the GILTI tax and reform international taxation. GILTI appears to affect about 120 companies in the S&P 500, mostly technology and finance companies. This change generated $280 billion.

Additional Income Tax: New tax for individuals with an income of more than $10 million. The BBB recommends adding an additional 5% tax on total adjusted income (AGI) above $10 million and an additional 3% tax on income over $25 million. According to the IRS, AGI received 21,112 returns of more than $10 million in 2018. This provision is said to generate $230 billion in tax revenue.

Net Investment Income Tax (NIIT) Extension: This provision affects many transferring companies such as Sub-S companies and LLCs. The law extends 3.8% of NIIT to revenues from these companies. This means that during the transition period, entrepreneurs need to think carefully about how they will receive their funds, especially the rewards and distribution. That would add $230 billion in taxes.

State and Local Taxes (SALT): The Employment and Tax Reduction Act (TCJA) has limited jointly filed state and local tax breaks to $10,000. The BBB suggested increasing the allowable deduction to $80,000. These are itemized allowances for property taxes, property taxes for individuals, and state income taxes.

State taxes are unequal, some states have no income tax, and others, such as New York and California, have significant income taxes. According to the Tax Foundation, New York is the largest tax burden, with 14.1 percent of total state revenue going to state and local taxes. In comparison, Alaska is the least polluted state at 5.8%. This provision offers tax breaks to high-income households in high-tax countries. Alternatively, you can re-enable alternative minimum tax (AMT).

Due to the odd nuances of clearing accounts (especially with maturities of only 10 years), TCJA’s limit for SALT deductions will expire in 2026, so deductions are indefinite after 2025. BBB becomes the limit. maintain and increase $80,000 through 2032. Taxes on very high-income taxpayers from 2026 to 2032 will restore the $10,000 limit by 2032. At least the increase is tricky, as it will lower taxes by about $275 billion by 2025, increasing $290 billion.

Extended child discount: This extends the child discount which increases by one year. This is a loan of $3,000 for children aged 6-17 and $3,600 for children under 6 years of age. This credit is repaid in full. That said, taxpayers don’t have to pay income taxes to get a loan. The 2021 loan is for eligible families with a total Adjusted Income of less than $150,000 (married), $112,500 (head of household), or $75,000 (male). This provision gave the family an estimated $190 billion in profits.

IRA Changes: The BBB imposes some restrictions on IRAs. In particular, if your combined IRA and fixed income accounts are more than $10 million, you cannot contribute to losses or traditional IRAs. This restriction only applies to taxpayers whose income is greater than $450,000 (married), $425,000 (head of household), or $400,000 (unmarried).

The BBB also suggests that if a taxpayer’s income exceeds the income threshold, they require a minimum payment of more than $10 million in combined IRA credit and defined contribution annuities. IRAs over $20 million have significant distribution requirements. The bill also includes a “backdoor” loss strategy to deduct revenue from loss contributions and planned “large losses” after tax conversion. The same income limits apply.