The Biden administration has recently released its proposed budget (aka "Green Book") for the 2022 fiscal year. The U.S. Treasury indicates the $6 trillion budget aims to improve infrastructure, clean energy, research & development, and among its many provisions are a host of proposed tax changes affecting individuals and corporations - including potential retroactive capital gains policies.One of the tax and revenue proposals, entitled the American Families Plan, would raise taxes on high-income individuals, make permanent many of the various recent tax credit expansions, increase limits on like-kind exchanges, and address several tax administration issues, including regulation of paid tax return preparers with a new online system.

Other proposals bundled under the American Jobs Plan include a variety of corporate tax changes, including: raising the corporate tax rate; imposing a minimum tax on corporations; tax incentives to support housing and infrastructure and various clean energy incentives.

American Families Plan

The proposed budget would make the following changes to the taxation of high-income individuals:

• Taxing capital gains of high-income individuals (with adjusted gross income over $1 million) at a 37% rate;
• Increasing the top marginal income tax rate for high earners from 37% to 39.6% for taxpayers with taxable income over $509,300 for married taxpayers filing jointly and over $452,700 for single filers;
• Imposing capital gain tax on property transferred by gift and on property owned at death; and
• Rationalizing the net investment income for business checking account in a bank and Self-Employment Contributions Act (SECA) taxes so that all pass-through business (click here to know the process of starting a new business, click here) income of high-income individuals is subject to either the net investment income tax or SECA tax.

Additional proposed changes include:

• Permanently extending the expansion of the earned income tax credit (EITC) for workers without qualifying children;
• Making permanent ARPA’s changes to the child and dependent care tax credit;
• Permanent expansion of the American Rescue Plan Act (ARPA), P.L. 117-2, of premium assistance tax credits;
• Extending ARPA’s child tax credit increase through 2025 and making permanent its full refundability;
• Increasing the employer-provided child care tax credit for businesses to 50% of the first $1 million of qualified care expenses;
• Taxing carried interests as ordinary income for partners with taxable income over $400,000;
• Limiting the deferral of gain from like-kind exchanges to $500,000 per taxpayer ($1 million for married taxpayers filing jointly) per year;
• Permanently extending the Sec. 461(l) excess business loss limitation for noncorporate taxpayers.

The Biden Administration’s proposed budget aims to improve compliance and tax administration, with the following changes:

• Begin comprehensive financial account reporting, which would apply to all business and personal accounts from financial institutions, including bank, loan, and investment accounts above a $600 threshold;
• Enabling the IRS a multiyear appropriation to help manage tax evasion;
• Enhancing accuracy of tax information by expanding Treasury’s authority to require e-filing and improving information reporting;
• Crypto assets- expanding broker information reporting and also explaining the regulatory issues regarding cryptocurrency with the help of the expert;
• Addressing taxpayer noncompliance with listed transactions by extending the statute of limitation and imposing liability on shareholders to collect unpaid corporate income taxes;
• Increasing oversight on return preparers by providing Treasury with explicit authority to regulate paid preparers of federal tax returns, including establishing minimum competency standards;
• Changing various tax administration rules; and
• Authorizing limited sharing of business tax return information to measure the economy more accurately.

The American Jobs Plan

The proposed budget asks for the following corporate tax changes:

• Raising the corporate income tax rate to 28% from its current 21%;
• Revising the global minimum tax regime, disallowing deductions attributable to exempt income, and limiting inversions;
• Imposing a 15% minimum tax on book earnings of large corporations;
• Providing a 10% tax credit as an incentive for locating jobs and business activity in the United States and removing tax deductions for expenses incurred in connection with moving jobs overseas;
• Repealing the global intangible low-taxed income (GILTI) exemption for foreign oil and gas extraction income;
• Repealing the deduction for foreign-derived intangible income (FDII);
• Replacing the Sec. 59A base-erosion and anti-abuse tax (BEAT) with a new “stopping harmful inversions and ending low-tax developments” (SHIELD) rule;
• Limiting foreign tax credits from sales of hybrid entities; and
• Restricting deductions of excessive interest of members of financial reporting groups for disproportionate borrowing in the United States.

To help support housing and infrastructure needs, the budget proposes:

• Expanding the low-income housing tax credit;
• Providing a new neighborhood homes investment tax credit;
• Providing federally subsidized state and local bonds for infrastructure;
• Making permanent the Sec. 45D new markets tax credit.

Regarding clean energy changes, the proposed budget includes:

• Establishing tax credits for heavy- and medium-duty zero emissions vehicles;
• Extending and enhancing the electric vehicle charging station credit;
• Providing tax incentives for sustainable aviation fuel;
• Extending and improving various renewable and alternative energy incentives;
• Providing a tax credit for electricity transmission investments;
• Providing an allocated credit for electricity generation from existing nuclear power facilities;
• Establishing new tax credits for qualifying advanced energy manufacturing;
• Providing a production tax credit for low-carbon hydrogen;
• Extending and enhancing various energy efficiency and electrification incentives;
• Eliminating various fossil fuel tax preferences;
• Reinstating superfund excise taxes and modifying oil spill liability trust fund financing;
• Providing a disaster mitigation tax credit; and
• Expanding and enhancing the carbon sequestration credit.

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We focus on client satisfaction, delivering high-quality services at fair rates. Contact us to learn how the proposed changes may apply to your situation.