Prepare now for potential tax changes outlined in the Build Back Better Act

By Tracy Marrin, CPA, Principal

The Build Back Better Act was passed by the House of Representatives on Nov. 19 and now sits with the Senate for the next steps in the legislative process. If passed into the law, this bill will provide for new social spending initiatives, green energy incentives, and the extension and expansion of tax credits aimed at helping middle- and lower-income taxpayers. The bill is pared down from its original version and many of the initial tax law changes were removed. However, it still includes certain increases to tax on high-income taxpayers, and changes to corporate and international taxation. Your Rehmann tax advisor can help you to prepare for this pending legislation as well as other recent tax law changes.

Here are some highlights of the tax provisions proposed in the bill:

Business provisions

  • New Corporate Alternative Minimum Tax equal to 15% of the corporation’s adjusted financial statement income. This applies to corporations with an annual adjusted financial statement income amount in excess of $1 billion for the three prior tax years. ($100 million for certain corporations with foreign parents.) Proposed to be effective for tax years beginning after 2022.
  • New excise tax of 1% on stock repurchases by domestic corporations whose stock trades on an established securities market. The excise tax would also apply to certain purchases of stock of specified affiliate corporations.
  • Limitation on business interest expense allowed for domestic corporations that are part of a multinational group that prepares consolidated financial statements and has an average excess interest expense of $12 million annually over the prior three years.
  • Delay of the requirement to amortize research and development expenses under the Tax Cuts and Jobs Act (TCJA) to 2026.
  • International proposals include a reduction to the potential benefit in Foreign-Derived Intangible Income (FDII) and changes to the Global Intangible Low-Taxed Income (GILTI) that will result in an increase to the effective tax rate. Proposed changes to the foreign tax credit include country-by-country limitations and the elimination of the foreign branch basket.

Individual proposals

  • New income tax surcharge on the modified adjusted gross income of individuals, estates, and trusts. The two-step surcharge includes a 5% surcharge on modified adjusted gross income in excess of $10 million for individual filers ($5 million for married taxpayers filing separately). Plus, an additional 3% surcharge on modified adjusted gross income in excess of $25 million for individual filers ($12.5 million for married taxpayers filing separately). Estates and trusts would be subject to a 5% surcharge on modified adjusted gross income in excess of $200,000 and an additional 3% on modified adjusted gross income in excess of $500,000.
  • Expanded Net Investment Income Tax (NIIT) to include a 3.8% tax on the passthrough earnings of individuals, estates, and trusts that were previously exempt because the taxpayer materially participates in the trade or business. This applies to joint filers with income in excess of $500,000 ($400,000 for head of household and single filers, and $250,000 for married filing separately filers).
  • Prohibition of excess business losses of noncorporate taxpayers would be made permanent.
  • Increase to the Schedule A SALT deduction cap from $10,000 to $80,000 ($40,000 for taxpayers who are married filing separately). This would return to $10,000 in 2031.
  • Changes to the Child Tax Credit to extend certain modifications made in the American Rescue Plan Act of 2021 (ARPA) to 2022, including: full refundability of the credit; advance payments; increased age limit of a qualifying child; and increase in the amount of the credit to $3,000 ($3,600 for children under 6).
  • Elimination of the 75% and 100% exclusion rates for gains from the sale of Qualified Small Business Stock (Section 1202 stock) for individual taxpayers with adjusted gross income equal to or exceeding $400,000, and for trust or estates regardless of income level.
  • Expansion of the wash sale rules to certain commodities, foreign currencies, and digital assets, such as cryptocurrency.

The Build Back Better Act also includes green energy provisions, including multiple new and modified credits.

Your Rehmann team is continuously monitoring the developments from Washington. Please reach out to your Rehmann advisor or contact us with any questions.

The final weeks of the year often find us scrambling to get things done and have our financial life in order. It all can feel like a lot on top of everyday life, especially as our economic landscape evolves. That’s why we created our Year-end Planning Hub, an all-in-one spot for the essential things you’re thinking about right now and ideas for how you can best prepare for success.

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