How the Infrastructure Bill Could Impact Your Personal and Business Taxes
Congress reached a bipartisan agreement at the end of July for a portion of the infrastructure bill. Now, through the reconciliation process, spending could include an additional $3.5 trillion. While the bill is still up for question, Bayou Bookkeeping wants you to understand how it could impact you. You’ll need to start preparing now, and here’s why.
The American Jobs PlanThe second part of the infrastructure bill includes much of what President Biden outlined in his American Jobs Plan. It’s possible that the spending, which some dub “human infrastructure,” could pass without a vote through the budget reconciliation process. Consequently, you could see an increase in your corporate tax rate, personal tax rate, and capital gains tax.
When you hold an investment for longer than a year, its increased value constitutes a capital gain. Thus, you exclude the original investment amount (the basis). For example, if you invested $10,000 two years ago and cashed out your investment at $14,250, you realized a $4,250 capital gain. Therefore, the IRS taxes the $4,250 increase.
Changes to Capital Gains Taxes
The IRS assigns capital gains taxes on a graduated income scale, just like ordinary income taxes. Accordingly, capital gains taxes can be zero, 15 percent, or 20 percent. Consequently, the highest capital gains tax rate is currently 23.8 percent, but that may change. Additionally, some must add in the Obamacare tax at 3.8 percent.
For those earning $1 million or more, the capital gains rate increases to 43.4 percent. If you’ve achieved that amount in retirement savings or want to sell a home that has appreciated over decades, this could be a huge hit. Moreover, the amount doesn’t factor in state taxes.
It may be too late. The impact date may be retroactive to the date the White House published the fact sheet on April 28, 2021. If that’s the case, you could offset the gains with charitable giving, other losses, installment payments, or deferrals. However, if the date is postponed, you may consider accelerating your gains by chasing out early.
Should You Sell Now?
The proposed corporate tax rate, currently at 21 percent, is 28 percent. Accordingly, the highest ordinary income tax rate would increase from 37 percent to 39.6%. Moreover, you can expect to see an increase in IRS and enforcement. Additionally, a 21 percent global tax is meant to deter businesses from moving assets overseas. While businesses like Amazon use tax loopholes to avoid taxes completely, some of these changes could negatively impact people who have made small investments toward retirement that accumulated over time.
Protect Your Earnings
If you’re a small business owner or individual in Baton Rouge who is worried about potential consequences of the infrastructure bill , call Bayou today at (225) 442-1137. We’ll partner with you as these changes develop, to determine your best course of action. Our goal is to support your efforts regarding tax preparation, bookkeeping, and professional financial services. Learn more with a free consultation.