What’s off the table, what’s still in play, and what your charitable clients need to know now about tax reform

Late last month, the White House released a proposed $1.75 trillion revenue package, putting to rest—at least for now—some of the uncertainty. The uncertainty as to how sweeping tax reform could upend wealth planning strategies via changes to top marginal rates, a restructuring of the capital gains tax, and lower estate and gift tax exclusions, all of which have been heavily discussed and debated over the last several weeks. For now, those significant changes appear to have been dropped. 

 Attorneys, accountants, and financial advisors who represent high-net-worth clients are, however, keenly aware of how the just-proposed legislation still could pack a punch:

  1. Where charitable giving is concerned, the proposed new surtax (modified from earlier versions) cannot be avoided or reduced through charitable deductions. That is because the proposed 5% surtax on taxpayers with more than $10 million in adjusted gross income is assessed on just that—adjusted gross income. Thus, below-the-line deductions won’t help. Furthermore, an additional 3% surtax has been proposed for taxpayers with more than $25 million in AGI.
  1. In addition, under this new proposal, pass-through entities, such as S corporations and partnerships, are still the subject of a 3.8% Net Investment Income Tax, as was the case under the prior version of the revenue package. Under the new proposal, this tax would be expanded to taxpayers with taxable income of $400,000 ($500,000 for joint filers) or more.
  1. Of interest to advisors who represent businesses and business owners, a 15% “corporate minimum tax” would apply to the “book income” of corporations earning profits greater than $1 billion under the proposed new law. For your clients who’ve historically relied on income tax credits, this is an important provision to watch because income tax credits would not be as valuable as they are now.
  1. Related, look out for a parallel increase to the global minimum tax rate, especially for corporate clients who have an eye on relocating headquarters to foreign countries. And under the new proposed laws, when a corporation buys back its own stock, it would be taxed like corporate dividends—plus a new 1% excise tax.
  1. Finally, effective as of September 13, 2021, if the legislation passes as written, high net-worth clients could be significantly impacted by the proposed limitation on “stock exclusions” under Internal Revenue Code Section 1202. For taxpayers with an adjusted gross income of $400,000 or more, and for estates and trusts, only the 50% exclusion provision would remain. The 75% and the 100% exclusion would no longer be available.

If you have any additional questions, please connect with our  team:

Sarah Weaver
, JD
Director of Charitable Gift Planning and Legal Counsel
317.634.2423 x510


Travis Smith, CFRE
Director of Development and Gift Planning
317.634.2423 x319

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