Tax Rate Increases Probable: A Preview of The American Families Plan
Congress is currently debating numerous tax and benefit details of President Biden’s American Families Plan (AFP). Significant changes to the federal individual tax system are in the offing, with most taking effect beginning with the 2022 year.
As the close of the 2021 third quarter nears, a small window of time remains to strategically plan for these potential tax changes. Our clients, and veterinary practice owners in particular, may want to act on specific tactics before yearend in the face of rising tax rates and lowering tax brackets.
While the specifics of proposed law changes are cloudy, we do know, in general, what the changes will entail should the current plan released by the House Ways and Means committee on 9/15 become law. Be aware that changes are definitely coming and will continue to evolve rapidly over the next few weeks and months leading to year end. Before you take any substantive tax actions, please consult with your tax accountant to confirm that they make tax-sense for your specific unique circumstances.
This strategy will be very compelling for business owners who may be adversely affected by increases in self-employment tax, the net investment income tax surcharge, and reduction of the 20% QBI deduction (QBID). The interplay of income acceleration with the QBID will prove a difficult planning choice for some veterinary practice owners.
Energy credits such as solar and wind investment are expected to go up. Stalling 2021 project completion until 2022 may be a good tactic to investigate.
The proposals will affect taxable income from operations as well as business asset sales, so it is incredibly important for business owners to plan in advance with tax advisor assistance as soon as possible while there is still time. To illustrate the potential impact to veterinary practice owners, we just attended a class where the instructor depicted an average business yielding $100,000 of profit would likely cause its shareholder to pay another $7,650 in 2022 tax as compared to 2021 tax.
Each situation is different and requires planned thought and action. The cost of 2021 planning actions should be more than offset with 2022 and future tax savings.
Marsha Heinke, DVM, EA, CPA, CVPM | 09/22/2021