For example, because the bill would increase the top ordinary income tax rate from 37% to 39.6% for individuals earning over $400,000 starting in 2022, a client who is expecting a year-end bonus could benefit from accelerating that income to this year (e.g., by asking for it to be paid in December 2021 instead of January 2022).
Additionally, the fact that most capital gains realized after September 13, 2021, would be subject to a higher top capital gains tax rate of 25% under the bill means it will be even more important to consider the tax consequences of performing year-end rebalancing in HNW clients’ taxable accounts… especially given the potential for large unrealized gains in those accounts after a year of strong market growth.
Furthermore, with the proposed bill reducing the estate tax exemption amount by 50% effective on the day of enactment, couples with taxable estates over $11.7 million may have only a small window to gift away excess assets to avoid having them be subject to estate tax (especially given that a number of popular estate planning strategies, from GRATs to IDGTs, would also be shut down if/when the legislation is enacted).