If at first, you don’t succeed, try, try again! President Biden’s administration released its 5.79 Trillion dollar budget for the fiscal year starting October 1, 2022. We will be closely watching certain provisions of the proposal; however, this is very similar to last year’s failed tax increases. Considering the House and the Senate are almost equally divided between the parties, it is impossible to predict proposed tax legislation.
Proposed Tax Legislation for 2023
Increase the top marginal rate for high-income taxpayers: the current top income tax rate is 37% and applies to income over $539,900k for single and $647,850 for joint. The Administration proposes to increase the top rate to $39.6% beginning in 2022 and would adjust the rate to income over $400,000k single and $450,000k for joint. If Congress does nothing, the rate automatically reverts to a 39.6% top income rate in 2026.
Tax qualified dividends and long-term capital gains: the current tax rate is 20%. The administration proposes that for wage earners with income over $1 million, jointly, or $500k married filing separately, dividends and long-term capital gains would be taxed at ordinary income rates, either at the current 37% rate or at the 39.6% rate, if passed above.
Moreover, the administration proposes that business executives would have to hold on to their shares after a stock buyback and proposes to increase the corporate tax rate to 28% from the current 21%.
Minimum Tax Rate: The administration proposes a 20% minimum tax rate on households worth more than $100 million (including taxing unrealized gains on assets that have appreciated in value).
Changes to Grantor Retained Annuity Trusts (GRATs): GRATs are an attractive estate planning technique that allow for shifting the appreciation of assets out of estates free of estate and gift tax. The administration is proposing a minimum 10-year term and the maximum to be the life expectancy of the creator plus ten years which would eliminate the attractiveness of this technique.
Other Proposed Changes: Other changes proposed include limiting the duration of the GST exemption, Repealing Section 1031 exchanges, depreciation recapture on the sale of depreciable real estate, and changes to the administration of trusts and estates.
Many of these proposed revenue changes were included in the Build Back Better Legislation, which failed in December 2021. All of these revenue proposals are geared towards taxing the wealthy and those that employ trusts for intergenerational planning.
Stay tuned for additional updates and, as always, contact us if you'd like to discuss how the proposed tax changes would affect your estate plan!
