What Business Owners Need to Know About the Recent Tax Proposal

What Business Owners Need to Know About the Recent Tax Proposal

November 22, 2021

Throughout the last few weeks, we’ve discussed some tax changes that could be coming to fruition through new legislation. While the Build Back Better Act continues to go through renditions and we await approval for some tax changes on the horizon, we want to be able to keep you informed of what we know now, the impact it could have down the road, and what you can do to prepare.

For S Corporations and Real Estate Investors

One of the proposals under the act is to expand the taxation of Net Investment Income amongst more individuals. Of groups that may be impacted, S corporation owners and those investing in Real Estate are at the top of the list. The bill suggests treating income from these businesses as Net Investment Income, triggering a 3.8% NII Tax on the distributive share of an S Corporation.

For Large Businesses

In addition to raising taxes on high income earners, the bill also aims to raise taxes on large and profitable corporations. For those businesses with over $1B in profit, the proposal suggests a 15% tax on corporate book income. Book income is the income that is reported to shareholders.

For the owners

In addition to these tax increases to the businesses themselves, owners of profitable businesses may be subject to the individual tax increases for wealthy Americans. This includes additional maximum income tax brackets as well as an additional top capital gains and qualified dividends tax bracket. To learn more about these individual increases, read our blog post November Series: Tax Rates and Capital Gains

If you’re a business owner or high income earner and wondering if you could be affected by these changes, discuss with a wealth advisor to understand your specific impact and if there are alternative strategies to minimize your tax liabilities down the road.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.