The changing tax landscape and you

Fidelity Viewpoints 06/08/2021

Despite the uncertainties, there are strategies to consider if you expect higher taxes.

Key takeaways

  • Given the outline of recent tax proposals from the Biden administration, it seems that federal taxes may go up, but most individuals earning less than $450,000 likely won’t end up paying more.
  • Higher corporate taxes are likely, but history suggests this might not necessarily negatively impact US equity returns.
  • If taxpayers are concerned that future federal tax law changes might raise their personal rates, there may be some strategies they can employ now to manage taxes on income, investments, and estate planning.
  • Some strategies include accelerating income, deferring income with strategies like nonqualified stock options, and charitable giving.

Are you wondering what the myriad of tax proposals floating around Washington might mean to you? It’s impossible to know for sure. We are in that white-boarding phase of the legislative process when it’s hard to know exactly what will pass and when it will be effective. But if you are concerned about your personal situation, there are things you may want to consider to reduce the impact.

Here’s what’s likely:

Corporate taxes could head up.

The American Jobs Plan proposes financing a massive infrastructure initiative with an increase in the federal corporate tax rate from 21% to 28%, among other changes.

Individual tax hikes are generally intended to focus on high earners.

The American Families Plan focuses more on education, child care, and other family support initiatives, and calls for the top federal tax bracket on individual income to go from 37% to 39.6%. This would mainly affect individuals with taxable income of more than $450,000 and couples more than $500,000. The plan would also tax capital gains for those with adjusted gross income of more than $1 million at that top rate. The changes in this plan would result in about $661 billion in additional taxes according to the Tax Foundation.*