Tax Law Changes and Proposals: Key Updates for Filers

Changes to Tax Law: Know Before You File! Rick Najjar, Senior Managing Tax Consultant, BKD, LLP Ted Kontopoulos, Senior Tax Consultant II, BKD, LLP November 30, 2021

DISCLAIMER This slide deck document is for informational purposes only. The following material is based on existing U.S. federal and state tax authorities as of the date of this presentation. This document is not intended or written to be used for the purpose of avoiding penalties that may be imposed.

Agenda U.S. Federal Tax Law Changes & Proposals Illinois State Tax Law Changes & Considerations Question & Answer Session

U.S. Federal Tax Law Changes & Proposals Legislative Outlook Current Proposals Strategies & Planning Considerations

2021 U.S. Legislative Timeline Bipartisan infrastructure bill approved by Senate $550 billion in new spending August 9 American Families Plan fact sheet released Domestic priorities Paid for with tax increases on high- income Americans Revised BBBA framework released by House Democrats $1.75T compromise October 28 Bipartisan deal announced $1.2 trillion compromise focused on hard infrastructure House approves BBBA Moves to Senate Budget resolution approved by House August 24 Nov. 18 April 28 June 24 March 31 August 10 $3.5 trillion budget resolution introduced by Senate Democrats Framework for Biden agenda May 28 Sept. 13 & 15 Ways & Means proposal released & advanced Approved without amendment Nov. 15 Bipartisan infrastructure bill signed into law Approved in House on Nov. 5 American Jobs Plan & Made In America Tax Plan fact sheet released Focus on rebuilding infrastructure & promoting green energy Paid for with corporate tax increases President s budget & Green Book released Provides explanations for changes & details on proposals

2021 U.S. Legislative Outlook Uncertain Headwinds Slim margin of control by Democrats in House (3 seats) & Senate (0 seats) Widening divide between moderate & progressive Democrats on number of key issues Momentum Biden administration sees BBBA as one shot to enact agenda with greater likelihood Democrats lose House in Nov. 2022 elections. Budget reconciliation resolution

Select Current Proposals

Infrastructure Investment & Jobs Act $550 billion in new spending paid for in various ways, including: Restrict availability of Employee Retention Credit to wages paid prior to Oct. 1, 2021 (three months early), except for recovery start up businesses Strengthen tax enforcement on transactions involving digital assets Repurpose unused COVID-related relief funds

Build Back Better Act (BBBA) Tax Proposals Topic Current Law 21% flat rate Green Book 28% flat rate Ways & Means 26.5% top rate for corporations with incomes of $5M while reducing rate to 18% for corporations with incomes less than $400,000 Effective for tax years beginning after Dec. 31, 2021 House BBBA Same as current Create new 15% corporate minimum tax for corporations with adjusted financial statement income exceeding $1B Effective for tax years beginning after Dec. 31, 2022 Corporate tax rate

Build Back Better Act (BBBA) Tax Proposals Topic Current Law Seven brackets with top rate of 37%* for taxable income over $523,600 single & head of household (HOH); $628,300 married filing (MFJ) in 2021 Expires after Dec. 31, 2025^ Green Book Increase top marginal rate to 39.6% for taxable income over $400,000 single ($450,000 MFJ) Effective for tax years beginning after Dec. 31, 2021 Ways & Means Same as Green Book proposal House BBBA Not addressed (same as current law) Individual rates on ordinary income *Plus 3.8% net investment income tax on unearned income when modified gross income exceeds certain thresholds ^Thresholds continue to be indexed for inflation using chained measurement of consumer price index where applicable

Build Back Better Act (BBBA) Tax Proposals Topic Current Law None Green Book Not addressed (same as current law) Ways & Means Create new 3% surtax on individuals with modified adjusted gross income (MAGI)^ exceeding $5M ($2.5M for MFS)* Effective for tax years beginning after Dec. 31, 2021 House BBBA Create new 5% surtax on individuals with MAGI exceeding $10M# ($5M for MFS) with additional 3% tax for MAGI over $25M# Effective for tax years beginning after Dec. 31, 2021 Surcharge on certain high- income taxpayers *$100,000 for trusts & estates ^Adjusted gross income reduced by any deductions allowed for investment interest #$200,000 & $500,000 for trusts & estates, respectively

Build Back Better Act (BBBA) Tax Proposals Topic Current Law 3.8% on certain net investment income with MAGI over $200,000 ($250,000 MFJ)^ Self-employment earnings & wages subject to 12.4% Social Security tax split between employer & employee on earnings up to $142,800 in 2021* Green Book All pass-through business income of high-income taxpayers subject to either NIIT or SECA tax Apply SECA to ordinary business income of high- income nonpassive S corporation owners Ways & Means Expand NIIT to cover net investment income derived in ordinary course of trade or business for taxpayers with taxable income greater than $400,000 single ($500,000 MFJ) as well as trusts & estates House BBBA Same as Ways & Means proposal Net investment income tax (NIIT) & Self-employment Contributions Act (SECA) tax *$100,000 for trusts & estates ^Adjusted gross income reduced by any deductions allowed for investment interest #$200,000 & $500,000 for trusts & estates, respectively

Build Back Better Act (BBBA) Tax Proposals Topic Current Law Top rate of 20%* Green Book Top marginal tax rate for taxpayers with adjusted gross income more than $1 million ($500,000 MFS)^ Effective for gains recognized after date of announcement (April 28, 2021) Ways & Means Top rate of 25% effective for any transactions completed after September 13, 2021, subject to binding contract exception House BBBA Not addressed (same as current law) Capital gains rate (including qualified dividends rate) *Plus 3.8% on certain net investment income for individuals with MAGI over $200,000 ($250,000 MFJ) ^Adjusted gross income reduced by any deductions allowed for investment interest

Build Back Better Act (BBBA) Tax Proposals Topic Current Law $10 million per person*^ Green Book Not addressed (same as current law) Ways & Means $5 million per person* Apply to estates of decedents dying & gifts made after Dec. 31, 2021 House BBBA Not addressed (same as current law) Estate & gift lifetime exemption *Adjusted annually for inflation. Currently $11.7 million in 2021; would be approximately $6.3 million in 2022 if enacted ^Expires after Dec. 31, 2025

Other Notable BBBA Framework Updates Provide $44.89 billion in additional funding for IRS enforcement of taxpayers with taxable income of $400,000 & above Increase today s $10,000 limitation on deduction for state & local taxes to $80,000 ($40,000 for MFS & trusts/estates) for 2021-2030 Provide expanded clean energy tax credits for 10 years *Adjusted annually for inflation. Currently $11.7 million in 2021; would be approximately $6.3 million in 2022 if enacted ^Expires after Dec. 31, 2025

Strategies & Planning Considerations

3 Steps to Plan Amid Uncertainty 1. Review your current tax situation 2. Financially model possible outcomes & strategies Assess timing of income, gains & deductions Evaluate choice of entity & structure Revisit your estate & philanthropic plans 3. Maintain flexibility & keep options open

Federal U.S. Tax Summary By The Numbers 48.8% Top ordinary income tax rate for individuals Top capital gains rate after December 31, 2021*31.8% 21% Top rate for corporations *Top capital gains rate would be 28.8% between September 14, 2021 and December 31, 2021

Illinois Tax Law Changes

Business and Personal Income Tax Changes 4.95% Individual Income Tax Rate for 2022 Governor Pritzker signed into law the Optional Pass-Through Entity Tax, a state and local tax cap ( SALT Cap ) workaround for partnerships and S corporations for tax years 2021 2025 Illinois decouples from the 100% federal bonus depreciation for all taxpayers starting with tax years ending on or after Dec. 31, 2021

Impact of COVID-19 and Remote Work Arrangements Illinois if employee is telecommuting from there for more than 30 days Illinois Department of Revenue issued an informational bulletin that said that out-of-state employers who normally would not be required to withhold Illinois income tax from employees that are Illinois residents may now be subject to Illinois withholding requirements. The Department also notes that if employees do not have Illinois income tax withheld by their employers, they could owe Illinois income tax and be subject to estimated tax payment requirements Estimated tax payments are required if employees reasonably expect their tax liability to exceed $1,000 after subtracting their Illinois withholding, pass-through withholding, and various tax credits Local Tax Concerns

Contact Information Rick Najjar rnajjar@bkd.com (816) 221-6300 (ext. 21331) Ted Kontopoulos tkontopoulos@bkd.com (312) 270-2526 Questions?

CBA Lawyer Referral Service lrs.chicagobar.org or 312-554-2001