Taxes can be a big drain on investors seeking to retain or increase their wealth.  Thus, it makes good sense to have a well-thought-out tax strategy.  While Congress is still working on the details, some preliminary tax law changes for 2022 and beyond have come out in draft form.

Here is a summary of some of the key points of the proposed legislation:

• Individual filers with income below $400,000 and Married Filing Joint (MFJ) filers with income below $450,000 will probably not see meaningfully higher taxes.

• Taxpayers with income over these thresholds should expect both higher marginal tax rates as well as higher capital gains tax rates.

• The highest ordinary income tax bracket may return to 39.6%. Currently the top bracket is 37%.

• For filers over the $400,000/$450,000 thresholds, the capital gains tax rate would increase from 20% to 25%. A 3.8% Medicare surtax on high earners would boost the top rate to 28.8%.

• The “Backdoor Roth” (the strategy of making non-deductible IRA contributions and then converting them to a Roth IRA) may be history. Same with the “Mega Backdoor Roth” strategy that can be done inside some 401k plans.

• Roth conversions for individuals over certain income thresholds may be eliminated, but not until 2031. (Congress enjoys the tax revenue it gets from Roth conversions.)

• The unified estate and gift tax exemption amount would be reduced to $5 million per person in 2022 from $11.7 million.

• The highest corporate tax rate may rise from the current 21% to 26.5%.

• The 3.8% Net Investment Income Tax (NIIT) may be applied to S-Corp distributions for taxpayers with income over $400,000 (Individual) or $500,000 (MFJ).