Individual and Capital Gain Tax Rates

Individual and Capital Gain Tax Rates are Not Going Up in New Budget Reconciliation Proposal!

Or are They?

The good news: NO increases to individual income or capital gains tax rates. This would be a major victory for our clients.

The hidden news: Under the proposal, all business income would be subject to the 3.8% Medicare surcharge now only assessed on wages and investment income. Plus for AGIs over $10 million, there will be a 5% surcharge and for AGIs over $25 million an 8% surcharge.

Effect on business income: So your top rate on flow through business income will increase from 37% to 40.8%. When the surcharges are added, the tax rate increase to 45.8% at $10 million of AGI and $48.8% at $25 million.

Effect on capital gains: If you or your client is selling a business, the capital gain rate will increase to 23.8% from 20%. If it's a large gain, the effective rate will grow to 28.8% at $10 million of AGI and 31.8% at $25 million of AGI.

Bottom Line: The "no rate increases" is great for the vast majority of taxpayers. The hidden effects of the 3.8% tax on business income and the surcharges will result in substantial tax increase especially to large privately owned business owners and those interested in selling.