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Potential Tax Law Changes Under the American Jobs Plan That Would Affect Individual Taxpayers

Brian D. Kitchen, CPA, MT Director, Tax Strategies

Three Questions Every Audit/Finance Committee Should Ask

The passage of The 2021 Consolidated Appropriations Act in December 2020 and The American Rescue Plan in February 2021 were both geared toward stimulating the economy and providing pandemic-related financial benefits to businesses and individuals. Future legislation looks to build off of these packages and expand investment in various aspects of the U.S. economy.

President Biden’s current proposal, The American Jobs Plan, aims to address several facets of U.S. infrastructure, comprising two major components of the U.S. economy:

  1. Human infrastructure, including healthcare, early childhood education, and college education
  2. Traditional infrastructure, including roads, bridges, public transit, the power/electrical grid, and high-speed internet availability

The goal of the plan is to modernize U.S. infrastructure while also creating millions of jobs. In order to fund and accomplish these goals, the plan calls for several tax law changes which would affect both individuals and corporations alike.

Some of the plan’s tax provisions that would directly impact individual taxpayers are as follows:

  • Increase the highest individual tax bracket to 39.6 percent for households making $400,000 or more per year. Currently, the highest tax bracket is 37 percent for households making more than $622,000 per year.
  • Increase the capital gains tax rate to 39.6 percent for households making more than $1 million per year. The current capital gains tax rate is 20 percent for most households.
  • Eliminate stepped-up basis for certain inherited property. Property currently receives a stepped-up basis to fair market value at death when given to heirs.
  • End like-kind exchanges for gains greater than $500,000. Under current law, for example, an individual or a business can sell real estate at a gain and defer that gain by purchasing like-kind property within a certain timeframe.
  • Consistently apply the 3.8 percent Medicare tax (Obamacare tax) on earnings to those making more than $400,000 per year. The 3.8 percent surtax is currently applicable for portfolio/investment income, and applies to households with incomes in excess of $250,000. In addition, a 0.9 percent Medicare surtax currently applies to earned income for households with earned income in excess of $250,000.

Biden’s proposals as they currently stand are likely to be very fluid and are expected to change throughout the legislative process. However, business owners and individuals alike should be aware of these potential changes to ensure tax planning strategies can be implemented in a timely manner.

Brian D. Kitchen is a director with Kreischer Miller and a specialist for the Center for Private Company Excellence. Contact him at Email.  

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Brian D. Kitchen, CPA, MT

Brian D. Kitchen, CPA, MT

Director, Tax Strategies

Business Tax Specialist, Individual Tax Specialist

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