Yet another groundswell in new tax laws this year has created new opportunities and new challenges for wealthy clients. But one trick will be protecting the tax position of high-net-worth clients even as recent headline legislation appears in limbo heading into 2022.

For instance, the suddenly unclear fate of Build Back Better has made tax planning for 2022 unclear.

“Given the news out of Washington, Sen. [Joe] Manchin will not support the bill in its current format,” said Pratik Patel, the managing director and head of Family Wealth Strategies at BMO Family Office. “It’s unsure what changes we’ll see, but there will be changes to the proposed legislation.”

That means clients can still expect changes, advisors said. “While higher tax rates may not be incorporate into the new bill, surcharges most certainly are,” said Bruce Primeau, a CPA and the president of Summit Wealth Advocates in Prior Lake, Minn., adding that Build Back Better includes an expanded 3.8% net investment income tax on trade and business income that would hit single filers with taxable income over $400,000, and $500,000 for married couples filing jointly.

Primeau added that it also looks like there will be a 5% tax/surcharge on those with odified adjusted gross income (MAGI) exceeding $10 million, plus an additional 3% for those with MAGI topping $25 million.

Even if these proposals should fall through, other important tax developments for 2022 that high-net-worth clients need to plan for could include a personal wealth tax and greater IRS enforcement capabilities, Patel said.

The IRS wants to add as many as 25,000 positions in the next 18 months if Congress grants the funding. “Be prepared for IRS audits,” Patel said. "Increased IRS funding will likely result in a larger number of audits for high-net-worth individuals.” 

Patel also noted a potential increase on the cap on the state and local tax (SALT) deduction from $10,000 to $80,000 through 2030. In fact, SALT is one example of a tax situation that is completely up in the air.

Some congressional Democrats are exploring new proposals to raise the $10,000 cap, though a new Tax Policy Center analysis shows that these options would primarily benefit those making more than $250,000 per year and do almost nothing for middle-income households. They would, however, be less regressive than the House plan to raise the cap to $80,000 “and they’d cost substantially less” in tax revenue, according to the center.

James Edward Maule, a tax specialist and professor at Villanova University, recently proposed in his blog that the SALT cap should be a fixed amount, adjusted for inflation, reduced by 10% of the taxpayer’s MAGI. Similar ideas were recently voiced by Sen. Bernie Sanders.

First « 1 2 » Next