- Financial advisors and their clients have waited for tax hikes as Congress hammered out provisions for the Build Back Better Act.
- But the House bill passed in November didn't include the reforms many expected, according to experts at CNBC Financial Advisor Summit.
Financial advisors and their clients have waited for tax hikes as Congress hammered out provisions for the Build Back Better Act. But the House bill passed in November didn't include the reforms many expected.
"The biggest takeaway for Build Back Better is the lack of change," said Jeffrey Levine, a certified financial planner and CPA at Buckingham Wealth Partners in Long Island, New York, speaking at the CNBC Financial Advisor Summit on Wednesday.
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Many wealthy Americans were bracing for higher ordinary income taxes, capital gains levy increases and lawmakers slashing the estate and gift tax exemptions, he said.
"Well, all of that is now out of this bill," said Levine. "So the big news for many is actually how little might be changing."
Although many taxpayers may have escaped sweeping changes, advisors are watching some provisions, particularly those targeting top-earning clients.
For example, starting next year, high-income S corporation owners may pay a 3.8% surtax on profits, Levine said.
There's also a 5% levy for individuals with more than $10 million of income per year, and someone making over $25 million pays an extra 3%, for a total of an 8% surtax.
While few filers meet those income thresholds, the same taxes apply to trusts at just $200,000 and $500,000, respectively.
Clients with significant retirement accounts left to a trust may easily exceed those thresholds due to the 10-year withdrawal rule, he said.
"Those surtaxes could impact a lot of our clients' families," Levine said.
As the year winds down, advisors are also eying Roth individual retirement account conversions, a strategy on the chopping block starting in 2022. If enacted, investors can no longer convert after-tax dollars after Dec. 31 this year.
However, clients need to review their entire situation before making year-end changes, experts say.
"It's not just about how much the taxpayer is saving right now," said panelist Sheneya Wilson, a CPA, founder and CEO of Fola Financial in New York. "It's about how much you're saving over a long period of time."
Another hot topic is cryptocurrency taxes, and clients sitting on losing positions may consider leveraging the crypto wash sale loophole, which House Democrats aim to close starting in 2022, Levine suggested.
"It's very important to understand how it is taxed, and more importantly, what tax strategies can be applied to that," Wilson said.
Many lawmakers are also pushing to repeal the $10,000 limit on the federal deduction for state and local taxes, known as SALT, and the House package raises the cap to $80,000 through 2030.
If enacted, clients in high-tax states may have the chance to "bunch" these expenses during the years in this timeframe to maximize their deduction, Levine said.
House Democrats in November passed their $1.75 trillion social spending package, including funds for universal pre-K, Medicare expansion, expanded Child Tax Credits and more.
However, Build Back Better is far from done as lawmakers need support from all 50 Democratic Senators to bypass Republican opposition through the reconciliation process.