Request a Meeting

Call: (913)-308-3326

Request a Meeting

Tax Legislation Proposal Changes: Life Comes at You Fast

Candace Varner

Ben Hake

While Congress seems to be actively trying to make their podcast episodes obsolete as quickly as possible, Tax Directors Candace Varner and Ben Hake nevertheless tackle the latest changes to tax legislation proposals. They cover what’s now in, what’s now out, what’s been modified, and why they have reason to be optimistic that someone at the IRS might eventually read their letters and answer their calls.

Read more about the latest tax updates:

All of Creative Planning’s latest articles and podcasts can be found here:

Listen to more about the Child Tax Credit:

Follow Creative Planning on social media:

The Standard Deduction podcast is hosted by Tax Directors Candace Varner and Ben Hake. This podcast is a thoughtful, informed discussion about ideas, trends and developments in taxes related to personal wealth management.

Our mission is to educate and inspire people to make better financial choices through knowledge, tools and strategies. We believe that education and planning are key components of financial success. Come explore relevant financial topics with our team.

Have questions or topic suggestions? 
Email us @ [email protected]


Candace Varner: Hello, and welcome to The Standard Deduction. I’m Candace Varner.

Ben Hake: This is Ben Hake, and we’d like to welcome all of our listeners. As we create these podcasts, we’re always thinking, let’s talk about subjects that’ll probably, hopefully, be relevant beyond just the one listening of the podcast as we go forward. And apparently Congress is actively listening to that and trying to fight us on it, because everything we’ve released in the past couple of months is starting to look irrelevant.

Obviously, we’re still interested in tax reform, and we’re going to focus on a lot of the changes that have just came out recently. I do want to point out that everything we’re focusing on is kind of on the revenue raiser side, so obviously the tax impact on this, but the bill is huge and is going to touch on many parts of the government, which is why we’re able to take a 1,600-page bill from Congress and delve into it and give the details in about 10 minutes.

Candace: Well, really we’re just getting the most exciting parts.

Ben: Exactly.

Candace: If you’ve been listening to our past episodes about what was in a lot of the proposals, then the current iteration of the tax proposal is going to be notable for both what is in it, but also what is left out. So there are a lot of things that we’ve talked about before or that have been proposed that are no longer on the table, at least for now.

So, Ben, let’s start with what did make the cut, what’s in the latest bill proposal which came out late October.

Ben: Yes. So the big one that’s going to be impacting a wide variety of taxpayers is going to be the Child Tax Credit, which has been expanded through 2022. So, the first one is going to be that for children that are under six, it’s been increased by $1,600, so from $2,000 to $3,600; and for children aged up to 16, it’s been increased by a thousand dollars, so from $2,000 to $3,000.

One thing that a lot of taxpayers have asked us about, and the thing that we’ve seen pretty regularly, is those advanced payments. So you maybe have gotten a check, a direct deposit, maybe logged onto the IRS’s website and said, “Don’t send those.” Those are going to continue in 2022, but instead of being split over six months, it’s going to be split over the entirety of the tax year. Those increased thresholds, so the $1,600 and $1,000, those do have a little bit lower AGI threshold. So for a single filer it’s $112,000 and for a married filer it’s $150,000. So, as your income goes over that you’ll start to phase out of the increase.

The big thing that I’ve been telling my clients is it doesn’t change the original Child Tax Credit. So that one is that $2,000 I had mentioned, and for single taxpayers it’s $200,000 when you start to phase out of that and, for married filing joint, it’s $400,000 as you phase out of that. So if you’re a married couple and you’ve got one child under the age of six and your income’s under $150,000, in 2022 you should receive a $3,600 credit for your child, and $300 of that is going to be sent to you each month, which should work out to half of it during the year.

Candace: And that $300 a month is a prepayment of the total credit, it’s not in addition to. So this coming tax season, when everyone’s filing for both 2021 and, if this passes, a year from now for 2022, you have to reconcile what you actually got versus what you are actually due on your tax returns similar to what we’ve been doing with the stimulus payments.

Ben: And I’ve heard from a couple taxpayers that the amount hasn’t been consistent on a month-to-month basis. So just another reason that you might want to go to the IRS’s website, as we’ve been told that they will provide a summary of every monthly payment. So maybe, hopefully, save yourself and maybe your tax preparer some heartache later on in the spring.

Candace: I’m really hoping they provide a summary, because I do hear from a lot of people that the amounts are different every month and we can’t recreate what they’ve come up with each time. So, good times.

Another piece of this current iteration of the proposal that is similar… it was in the last one, it was just slightly modified now, and that’s going to be the new surtaxes on high-income earners. So, this is if your adjusted gross income is over $10 million, so you have to have made $10 million during that year, they’re going to add an additional 5% to your tax. Another threshold is at $25 million. So if your income in that given year is $25 million or more, there’s an additional 3% surtax on top of the 5%. Now, the important distinction here is that those are based on your adjusted gross income, not taxable income.

So usually, you’d have your adjusted gross income and then you’d subtract your itemized or standard deduction and get to your taxable income, and the rates that we commonly talk about are applied to that. But these surtaxes are based on your adjusted gross income, which is before the deductions. So you wouldn’t be able to, say, donate your way out of paying these because those happen after the adjusted gross income. So this is a little bit different than how it’s normally calculated.

The other surtax that’s in there that has been in there in the past proposals is a change to the Net Investment Income Tax, which is 3.8% on your net investment income. Right now pass-through income from active partnerships and S corporations do not pay the 3.8% on their profits pass-through to the personal tax returns. The proposed tax change would have that tax apply only when your taxable income is over $400,000 or $500,000 (if you’re married filing jointly). So not to everyone, but would apply to a new type of income over that income threshold.

Did you follow all that, Ben?

Ben: I did indeed, taking diligent notes.

Candace kind of focused on increasing revenue by raising rates. So, basically just taxing people more. The other way to go about it that this bill is looking to do, is to close or to take away some of the ability to reduce your taxable income. So they’re doing that through two ways that seem to be pretty relevant to a lot of our clients. The first is going to be that they’re trying to reduce the amount of a loss you could deduct.

So, say you have a new startup business, don’t have a lot of revenue in yet, and you lose $1 million that first year, hopefully a one-time blip and it’s successful going forward, but historically you’ve been able to take that $1 million and offset anything else. So, if you were highly-compensated, or you’ve been using your retirement funds to do that, that loss would offset the other income, and if it was a $1 million of income, you’d wind up at zero.

A while ago, because of COVID, they removed those limitations, but going forward they’re looking to make it so that that loss would be limited to $540,000 if you’re married or $262,000, if you’re single. So, again, you lost that $1 million, only $540,000 of it would be deductible in the current year, and that spread would be deductible going forward. So it’d be a carry-forward. So, it’s not lost, just deferred into the future.

The other that has been an exception, or an exclusion, used by a lot of our clients is the 1202, which is qualified small business stock where you had a very specific investment, you owned it for a certain amount of time, and the business did a certain amount, a certain thing, and the IRS said, “Hey, 100% of that gain could be excluded.” Depending upon when you purchased it, it might have been 75% or 50% of the gain would be excluded. That applied regardless of your income. So if you’re one of the clients that Candace mentioned them had $25 million that year, you’d be able to use that exclusion for up to $10 million of gain. Well, the IRS is trying to reduce the people that would be able to use that, and so if your income goes over $400,000, then you’d start to lose that exclusion. It would only apply at 50%. So basically half the gain would be taxable.

One thing that’s of note is this does include… the bill includes the language that this would be effective for any transaction that was entered into after September 13th. So, if you do a transaction today, if the law were to be passed, it would apply. This isn’t something that’d begin with the 2022 calendar year.

Candace: I love when they do that in mid-year.

Ben: What’s going on with the corporate world?

Candace: Lots of things are going on in the corporate world. This particular bill looks to make a 15% corporate minimum tax. And that’s for corporations that are earning more than $1 billion a year. But, again, doesn’t mean $1 billion in taxable income. They’re looking at your book income. They’re trying to say, okay, you earned this amount of money, but then through different maneuvers in the tax code, your taxable income was actually zero. We want to look over at your book income to determine if you actually made money, and apply that 15% rate there.

This is part of a global effort that President Biden’s been involved in that… to try to get a global minimum tax, to avoid companies relocating or making different divisions within different countries to try to lower their taxes. And, as of today, 136 countries have agreed to this global minimum tax, and those countries represent 90% of the global economy. So it’s a large amount of countries, but each has to go back and enact it within their own law system, just like this is proposed for the U.S.

Also, for corporate taxes, the new bill proposes a new excise tax of 1% on any stock buybacks from C corporations. Those stock buybacks have increased substantially over the past couple of years, and so they’re looking to capitalize on that.

So then, Ben, after all of that, what didn’t make the cut? What can we just ignore that we’ve learned this year?

Ben: I kind of buried the lede earlier, but basically anything that was a Standard Deduction podcast over the last two or three months. So, one of the ones we did recently was on proposed changes to IRAs and retirement accounts. And literally not one word of that proposal made it into this bill.

Candace: Well, I’m glad I read it.

Ben: Indeed, and glad we talked about it. Some of the things that they had talked about were changing or restricting the ability for certain contribution limits, certain things, whereas IRAs hit certain thresholds, they would be required distributions before you turned the minimum age of 72, and also restrictions on backdoor Roth strategies. Every single one of those did not make it into the cut now, so that podcast can be disregarded.

Candace: It was fun while it lasted.

Ben: Indeed.

Candace: There was a couple other large things that didn’t make it into this bill, and that’s rate changes in estate tax changes. These are things I actually got the most questions about from clients and other people. A lot of things you see in the news, they were proposing increasing the highest marginal tax rate from 37% to 39.6%, not happening anymore. Increasing the capital gains rates — nine months ago they wanted to increase the capital gains rates to use your marginal rates, so it would’ve been that 39.6%. Then, they set it back to 25%, and now it’s just gone altogether. So, the top capital gains rate looks to stay at 20%. The only rate changes that are in this proposal are the ones that I mentioned earlier, are those new surtaxes when your adjusted gross income is over $10 million or $25 million. So for the very vast majority of taxpayers, those would not apply.

The other one that I saw in the news a lot was estate tax changes. The estate tax exemption is set to basically be cut in half at the end of 2025. That’s going to happen unless something is enacted. The last proposal wanted to accelerate that to the end of 2021, but that’s gone now, not on the table anymore.

And the other piece was a step-up in basis. So, some of the proposals that they wanted to get rid of, step-up in basis at the death of a taxpayer, which would’ve been a substantial change for everyone, but that’s been removed, as well. So all of that just ignore that you ever thought about it, basically.

What else is still in there, Ben?

Ben: The final things… we, again, focus on ways the IRS is going to increase revenue by taxing at higher rates or taxing more items. The final way they’re going to do this, or hopefully do this, is by increasing the IRS’s budget. So the idea is that the IRS believes there’s a tax gap, which is the tax liability if you were to tax literally everything you knew about versus the tax liability you report to the IRS. So there’s kind of this undisclosed tax liability that they think is out there.

And one of the issues the IRS has ran into over the last decade is a decreasing budget with a decreasing amount of agents to enforce the law, so that more people are kind of slipping through the cracks because they’re not able to enforce it. So the idea is that if we spend that money, hopefully they can find more revenue to cover their costs plus a little bit.

Selfishly, I’m also hopeful that they’re able to increase the amount of people that staff their telephone lines. Between COVID, tax reform, and the IRS administering lots of programs like these Child Tax Credits, the Affordable Care Act — it’s hard to get ahold of an IRS agent. So we appreciate the work the agents we do get ahold of do. It would be nice if there were a couple hundred thousand more of them.

Candace: 100,000.

Ben: Yeah. Well, you never know.

Candace: That would be nice to wait a little bit less. Or to maybe get them to read our mail before six-to-nine months later, that would also be helpful. But, again, selfish for those of us working with the IRS on a day-to-day basis.

That’s it for the current iteration of the tax proposals, but stay tuned because this isn’t actually passed yet. Like we’ve said every time, wait and see what actually happens. If you’d like more up-to-date information on the changes, check the education section of our website or follow us on social media, and those are updated usually within the same day or the next day of any proposals that come out. Thank you very much.

Disclosure: This commentary is provided for general information purposes only and should not be construed as investment, tax, or legal advice. Past performance of any market result is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable, but is not guaranteed.

Let’s Talk

Find out how Creative Planning can help you maximize your wealth.

More Episodes

Reasons to Be Optimistic

This month, Peter Mallouk and Jonathan Clements discuss today’s widespread pessimism — and why it should make investors optimistic about the financial markets. They also discuss opportunities presented by this (and every) bear market and offer tips on Roth conversions and term life insurance.

Not Your Average Bear

This month, Peter Mallouk and Jonathan Clements discuss how high demand, low unemployment, and supply chain disruptions played into the current bear market, what this bear market has in common with bear markets past and why market timing doesn’t work.

Why This Bear Market Is Different

This month, Peter Mallouk and Jonathan Clements discuss how this bear market differs from others in recent history, what options to consider if you have extra cash to invest and why you might want to rebalance.

Coping With Inflation

This month, Peter Mallouk and Jonathan Clements discuss inflation’s effect on everything from bonds to home prices and what actions you should — and should not — take to potentially mitigate your risk.

Hear more on inflation here:

“Your wealth works harder when it works together.”

Peter Mallouk

President & CEO, Creative Planning

Serving Clients Nationwide


Please Enter Valid Zip Code



Providing financial peace of mind across the globe



Combined assets under management & advisement as of December 31, 2021