With the release of a new “Build Back Better” framework from the White House, and with news from Washington D.C. on what is being called ‘The Billionaires Income Tax’, the anticipated impact to businesses and individuals is expected to be greatly minimalized.
KCoe Isom’s tax experts have surveyed the lastest proposals and report that it is still unclear whether these proposals fully replace tax increases previously approved by the House Ways and Means Committee.
“Based on Sens. Sinema and Manchin’s opposition to tax rate increases, we would expect the ‘billionaire’ taxes to replace primarily the income tax rate increases rather than all of the existing tax proposals. The latest White House framework indicates, however, that many of the House proposals will be removed from the final legislation,” says Beth Swanson, senior tax consultant for KCoe Isom.
Here is a summary of the latest tax updates and impacts under the most current Build Back Better proposal:
Elimination of Deferral – Billionaires’ Income Tax
- Applies to: Individuals and trusts that either have adjusted gross income of more than $100M, or aggregate assets in excess of $1B, and estates of individuals who met the income or asset test in at least one of the four years prior to their death.
- How it works:
- Year-over-year gains are taxed annually on tradable assets (like publicly traded stock)
- Capital gains tax on the sale or transfer of “nontradable” assets (anything that isn’t publicly traded) is increased by a “deferral recapture amount” assessed – essentially interest on the tax deferred, calculated as if the gain were realized ratably every year the individual held the asset.
- Transfers to trusts, including grantor trusts, are treated as sales of assets for their FMV on the date of contribution.
- Impact: The vast majority of taxpayers will not be impacted. Individuals with significant land holdings and those who may be close to the $1B mark should begin planning.
Corporate Minimum Tax
- Applies to: Corporations with average annual adjusted financial statement income in excess of $1B, or $100M if the corporation is part of a combined reporting group with a foreign-owned parent corporation
- How it works: Minimum federal income tax is 15% of financial statement net income
- Impact: Only the largest corporations will be impacted by the minimum tax
KCoe’s tax and legislative advisors will continue to monitor these proposals and provide clarifications and updates upon release. Contact a KCoe tax advisor with questions.
