Although the infrastructure portion of President Joe Biden’s Build Back Better Plan (H.R. 5376) was recently passed, there is a second track that is still being discussed. This part of the proposed plan focuses on social and climate spending and aims to invest in issues such as more affordable child care, tax credits for shifts to clean energy, and reducing prescription drug costs. Where is the money to fund this coming from? Higher taxes on the wealthiest Americans.
The Build Back Better program has been a hot topic of discussion in politics recently. However, this article aims to break down how the current proposal could affect your taxes rather than discussing the political correctness of the plan.
What does the Build Back Better Plan include?
What is Build Back Better? According to the White House’s website, the not-yet-passed portion of President Biden’s proposed Build Back Better agenda, inspired by the American Rescue Bill, aims to “rebuild the middle class” funded by tax increases on large corporations and wealthy American families making more than $400,000/yr. More specifically, the current proposal of the second track of the Build Back Better plan includes:
1. Corporate and international taxes
Build Back Better proposes that corporations making over $1 billion in profits pay a 15% minimum tax on corporate profits reported to shareholders. This framework also includes a 1% excise tax on corporate stock buybacks.
In an effort to keep jobs on American soil, President Joe Biden also has proposed a 15% minimum tax on foreign profits, agreed to by 136 other countries.
2. Business taxes on pass-through firms
If your business is a Limited Liability Company (LLC), Limited Partnership (LP), or an S-Corp, the presented plan imposes high-income taxpayers to pay the 3.8% Net Investment Income Tax (NIIT) on business distributions. Thus, closing the loopholes that have allowed business owners to avoid paying payroll taxes on non-wage distributions.
3. Individual income taxes
Biden’s Build Back Better Act includes a surtax of 5% on incomes in excess of $10 million and 3% (on top of the 5% surtax) for incomes above $25 million.
4. Works to better enforce our existing tax laws
Again, if you do not make more than $400,000 a year, the proposed IRS enforcement will not apply to you. However, if you make more than $400,000, Biden’s proposed tax deal update cracks down on auditing taxes for these wealthy American families. The plan suggests hiring IRS enforcement agents specifically qualified in pursuing wealthy individuals evading taxes, updating outdated technology, and investing in more efficient taxpayer services.
How will this affect my taxes?
How this proposed tax system will affect you will depend on your annual salary. The Biden administration has promised that no one making less than $400,000 would “pay a penny more in taxes.” For many of our clients, should the second part of the plan be passed, these tax increases are cause for concern and will require a sit down with your financial planner to ensure that tax strategies are set in place to minimize tax losses.
Not only can your advisor assist with strategic tax return review, but they can look at ways to distribute your income in the most tax-efficient manner — even with the proposed tax changes. This may be through strategies including retirement plan contributions, contributions to HSA, or charitable gifting.
Worried about how Biden’s Build Back Better Plan will affect your taxes? Avidian Wealth Solutions can help.
For many of America’s wealthiest families, tax increases may be on the horizon regarding the Build Back Better agenda. If you’re at all concerned about how the current proposal will affect your taxes in the coming years and are looking for a fiduciary financial advisor in Houston, don’t hesitate to contact our team at Avidian Wealth Solutions.
We offer high-net-worth business owners, individuals, and families a suite of wealth management services including tax planning, risk management, estate planning, and investment management. To learn more, request a meeting today!
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