As tax season is well upon us, we wanted to remind all of our Texas, Oklahoma and Louisiana clients that the tax deadline has been moved to June 15th due to the winter storm we experienced earlier this year. We also wanted to provide a brief update on the latest legislation that has been proposed and the potential tax changes that we may see with the current bills proposed.
Biden’s Build Back Better Agenda
The president has laid out much of his proposal for the Build Back Better agenda, and the most recent package is the American Jobs act, which in total is a $2.4 trillion package. Much of this spending is set to be funded via tax increases on corporations and multinational companies. However, Republican leaders have countered with a $500-$600 billion proposal, but it appears there is still a lot to be hashed out.
Although the Democrats have a slight majority in the house, and the Senate is 50/50, there are a few items that Democrats have already pushed back on. Items that we expect will impact our clients:
- Corporate tax rates will likely increase from 21% to somewhere between 25% and 28%
- Removal of the $10,000 cap on the SALT itemized tax deduction
- “Free” appreciation of assets basis to heirs in an estate tax situation, especially in regard to Farmers.
The next few weeks of negotiations will be very telling, and will likely present us with new tax planning strategies to iron out. As these proposals are made public, we will work to update you and address any necessary planning action that needs to happen before year end.
Advanced Child Tax Credit for 2021
We are sure that many of you have seen articles or news about the new advanced child tax credit for 2021. There were a few changes made to the actual credit, as the top age increased from 16 to 17 years old for your dependents, the amount increased from $2,000 to $3,000 per dependent, and children under 6 will now qualify for a $3,600 credit.
However, the biggest change is that the IRS will now pay out this credit (50% of the anticipated amount) directly to taxpayers in regular monthly payments. If your 2020 tax return has not been filed, the IRS will operate off of the information provided with your 2019 tax return. We expect the payments will be made in a similar fashion to the stimulus payments that many of you have received. Please be aware of this, as the credit when you actually file your 2021 return will be reconciled with what you have received throughout 2021, meaning that refunds may actually go down as you have received a portion of it “pre-paid” throughout the year.
You will have the option to elect out of the advance payment also. The details on how the election will be made have not been released, but we will be on the look out.
We will continue to keep our finger on the pulse of these changes and work to relay them to you. We will also be working to better understand all of the coming changes, and incorporate them into our tax planning for our clients.
