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Evolving Tax Landscape: 2021 Regulatory Outlook


The Greenbook has been available since May, and tax professionals need to ensure they pay close attention to the changes contained within, especially in light of the upcoming tax legislation shifts on the federal and state levels. Here, tax expert Dani Stillman takes a deep dive into how the proposed changes affect corporations, estate planning and more.

Sep 9th 2021
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As if the tax landscape had not been rattled enough for tax year 2020, the Biden administration’s proposed changes for the 2021 tax year and beyond may change the traditional tax planning season as well. This could be yet another significant shift only a few years after the Tax Cuts and Jobs Act, which shook up 30 years of mostly predictable tax planning.

In May of this year, the Treasury Department issued its “Greenbook,” which outlines the current proposals. A few of the largest potential shifts to expect will be the C corporation tax rate, capital gains and qualified dividends rates, the phase-out of the Qualified Business Income (“QBI”) deduction, and changes in basis rules for appreciated property transferred by gift to decedents.

Many of these changes, though only in the proposal stage, will affect taxpayers’ decision-making in the current year and years going forward as they try to maximize potential gains, minimize the tax bill at year-end, and enter into new merger and acquisition (“M&A”) deals. Also on the horizon is the constantly changing political environment for estate tax, where it seems that the favorable step-up for large capital gains transferred with the estate may soon disappear.

C Corporation Rates

With the 2017 Tax Cuts and Jobs Act (TCJA), we saw a slash in the highest corporate tax rate from 35 percent to 21 percent. The Biden administration’s proposal could raise this rate to 28 percent. This potential rate increase may affect the structuring of new businesses and major deals and possibly result in the C corporation (“C Corp”) as a less attractive entity choice. 

Pass-through entities, such as partnerships, LLCs or S corporations, may be a better option should the rates increase. Many states have been adopting the pass-through entity-level tax, which benefits the individual investors as a state and local (SALT) deduction workaround. This state deduction change, along with the overall corporate tax rate, may make it more beneficial to choose a pass-through entity structure, depending on the taxpayer’s unique scenario.

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