Happy Halloween Weekend.

By now, you’ve likely seen that the House Ways and Means Committee released a draft of significant tax legislation.   The proposed tax plan is not a treat and has many tricks contained inside the proposed bill.

Today is the time to begin your 2021 Tax Planning.  SCHEDULE A MEETING

Tax planning is proactively working to know you, your business, and which strategies can ensure maximum savings and ROI.

The following is a quick summary of some of the critical points of the proposed legislation (as best we can glean):

Single filers with income below $400,000 and Married Filing Joint filers with income below $450,000 will probably not see the significant impact right away. 


Taxpayers with income over those thresholds should expect higher marginal rates and higher capital gains rates.  

The bill brings back the 39.6% marginal bracket on ordinary income while compressing the existing 32% and 35% brackets

For taxpayers over the $400K/$450K thresholds, capital gains increase from 20% to 25%. While unpleasant, recall that President Biden’s original proposal included a top capital gains rate of 39.6%. 


The strategy of making nondeductible IRA contributions and then converting them to a Roth IRA – or the “backdoor Roth” – looks like it’s on its way out starting in 2022.  The same goes for the “mega backdoor Roth” strategy inside of 401k plans.   This action focuses on the need to review your IRA and 401(k) strategy for converting to a ROTH IRA.  Get your calendar out and schedule a meeting with us to see what steps you should take NOW.    SCHEDULE A MEETING

Unless specific criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before permitted tax-free withdrawals. Additionally, each converted amount may be subject to its own five-year holding period.

Elimination of Roth conversions for folks over the income thresholds, but not until 2031!


Increases to both the Child Tax Credit and the Child and Dependent Care Credits

The gift and estate tax exemption amounts would effectively be cut in half starting in 2022. That would still be over $5 million/person, though.  For many, the idea of paying Estate Tax had disappeared, yet now it is back into perspective and needs attention. 

The central question to answer is – is your life insurance included in your estate?   Knowing this answer might be the key to avoiding Estate Tax.

The application of the 3.8% Net Investment Income Tax (NIIT) to S-Corp distributions.  The tax is for taxpayers with income higher than $400,000 (individual) or $500,000 (married filing jointly)

Limitations of the QBI Deduction (199A deduction) for high-income taxpayers

There’s plenty more in the bill, but these are the points that apply to most people. 

One additional item worth keeping track of is a 3% surcharge on very, very high-income people. Attention, that’s also going to apply to trusts with an income of over $100,000. 

For clients who have left IRAs to a trust for the benefit of minor children, this income threshold may come faster than you think, given the 10-year requirement to deplete an inherited IRA.

We will continue to monitor this legislation as it works its way through Congress.


Call us at214-239-4700 or click to set up a ZOOM MEETING

Michael Tannery CPA CDFA® AIF® ● CEO

Registered Principal | Tannery & Company

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 The opinions expressed in this material are for general informational purposes only and is not a substitute for professional advice.  Individual circumstances do vary.

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