How to Prepare for Potential Tax Increases Next Year
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Here's your Money Briefing for Monday, September 20th. I'm J.R. Whalen for The Wall Street Journal. Get ready for another visit from Uncle Sam. Democrats on the House Ways and Means Committee have put dozens of proposed tax changes on the table. In some cases, tax increases that have passed would affect your bottom line.
People should be familiar with them and maybe get ready to do things so that if they do pass, they can act quickly.
Our tax reporter Laura Saunders has been going through the proposals, and she'll be here to talk about adjustments you can make to your finances to stay ahead of what's coming. That's after the break.
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Democrats in Washington are debating a sweeping $3.5 trillion federal spending plan, and to pay for it, they're proposing $2 trillion in tax increases, plus other tax law changes that could take effect early next year.
What tax debate and timeline does this episode introduce?
So how can you prepare in order to limit the bite that the government will potentially take out of your wallet? WSJ tax reporter Laura Saunders has been running the numbers, and she's here to talk about it. Laura, thanks for coming on the show.
And thanks so much for having me.
Now, Laura, so far the tax increases we're talking about are just proposals. So why should people think about getting paperwork together and reviewing their tax situation now?
Well, once we have proposals that have legislative language and a revenue estimate, it becomes much more likely that they're going to pass. Sometimes they don't. Sometimes they drop out. Sometimes then they come back a year or two or five years later. But these are serious proposals, and so we think people should be familiar with them and maybe get ready for, to do things so that if they do pass, they can act quickly, because that might be further on in the year, closer to the end of the year. And many, many of these proposals take effect January 1, 2022.
Yeah, a lot of debates to come. So let's get into some of the specifics here. One change on the table would make adjustments to tax brackets, the income levels at which different tax rates kick in. So how would the current tax bracket system change, and how can taxpayers get ahead of that?
This is important. President Biden made a promise that he wouldn't raise taxes on people making less than $400,000. In this case, the top rate would go up from 37% to 39.6%. But the top bracket would come down to single filers making more than 400 and joint filers making more than 450. And so those are lower thresholds than we have right now. And people that are, especially people with one-time gains, like the sell of a house that has very, a lot of appreciation in it, they could be caught by this. You should just be familiar, especially if you're going to have a windfall this year.
Okay. There's a lot going on here. Sounds like a good reason to check in with a tax professional.
I think so. Whenever you have any kind of windfall or large gain, you should always check with a tax professional and do it before the end of the year.
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