Year-end tax planning for individuals and businesses
There is still time in the last quarter of the year to take action that can positively impact tax liability for the year as a whole and help prepare for 2022. The American Rescue Plan Act of 2021 (ARPA), along with various previous legislation, changed many rules for 2021 and influences year-end tax planning. But even more important are the pending legislative changes that have a significant impact on what to do on the tax front before the new year.
Temporary income and deductions
Whether it is to defer or accelerate income and deductions wherever possible is a perennial question. It is more complicated now with the prospect of an increase in the maximum tax rate for individuals to 39.6% (against 37%) as well as a “millionaires” surtax of 3% (applicable to joint tax filers with a income exceeding $ 5 million, i.e. 2.5% million for other individuals), an increase in the corporate tax rate to 26.5% (from 21%) and an increase in the maximum rate on capital gains and dividends qualified at 25% (against 20%). Additionally, the increase in capital gains would apply to transactions after September 13, 2021. Traditionally, the general thought has been to defer income so that taxes are also deferred, while speeding up deductions to minimize taxes. This general reflection must be adapted to the changes proposed, as well as to the situation of each taxpayer.