By Karen Chan, CPA, CVA, MSA, ALL CPAs Supervisor
As President-elect Biden prepares for his inauguration on January 20, 2021, tax clients have increasingly reached out to their trusted accountants to inquire about the potential effects on their taxes. Many are curious about the potential tax implications of a new administration.
The Biden-Harris ticket pledged to undo many of the Trump administration’s signature policy achievement in the Tax Cuts and Jobs Act (TCJA). Biden has promised to enact more progressive tax policies that (if passed) would increase taxes on high-income taxpayers. So, what do these potential changes include?
What are some of the major proposed changes impacting individual filers?
- President-elect Biden’s proposed tax changes would increase taxes on individual earners with income above $400,000. This would be accomplished by increasing the top individual income tax rate from 37% to 39.6, increases to payroll taxes for those earning over $400,000, and other measures.
- Long-term capital gains and qualified dividends would be taxed at the ordinary income tax rate of 39.6% for income over $1 million. Additionally, Biden proposes to eliminate the step-up in basis for capital gains.
- Biden proposes to overhaul itemized deductions by capping itemized deductions at 28% of their value for those earning over $400,000.
- Eliminate §1031 like-kind exchange treatment for real estate transactions.
- The incoming administration’s proposed plan would phase out the qualified business income deduction (Section 199A) for those with taxable income over $400,000.
- Biden proposes to increase the child tax credit to $3,000 for children under the age of 17, and to provide a $600 bonus for children under 6 years of age. He also wants to increase the child and dependent care tax credit to a maximum of $8,000 from the current $2,100 level.
- Biden has also proposed to reinstate Social Security taxes on wages exceeding $400,000 for both employers and employees.
How might a Biden Administration impact my estate tax planning?
- Biden has proposed to reduce the amount of money people can pass on at death, free of taxes, to $3.5 million and limit the amount individuals can transfer in gifts to $1 million. The TCJA doubled the gift and estate tax exemption, currently $11.58 million per person, though this provision is set to return to the $5 million exemption level, adjusted for inflation.
- President-elect Biden has proposed eliminating the “step-up in basis” provision that allows heirs to inherit assets valued at the date of death.
What are the potential implications of Biden’s plan for businesses?
- Corporations would see their taxes rise from 21% under the TCJA to 28%. Additionally, a 15% alternative minimum tax would apply to corporate book income exceeding $100 million.
- Sales of products manufactured abroad but sold in the domestic U.S. would incur a 10% corporate surtax.
- Biden has proposed a 10% “Made in America” tax credit to incentivize domestic production and/or expanded manufacturing payrolls.
- Corporate taxes on Global Intangible Low Tax Income (GILTI) from foreign subsidiaries of U.S. firms would double from its current level to 21%.
- Provides tax incentives for small businesses to adopt workplace retirement savings plans.
Other Factors to Consider
While Biden’s plan is simply a starting point for his administration’s proposals to the next U.S. Congress, it still can be changed or modified going forward. We will continue to monitor this situation closely and report any changes.
If you have any questions, please contact your ALL Tax Advisor or call the office at 617-738-5200.
About the Author
Karen Chan, CPA, CVA, MSA
Karen Chan is a Supervisor at ALL CPAs. In addition to serving clients as a Certified Public Accountant (CPA), Karen also holds the Certified Valuation Analyst (CVA) accreditation and helps businesses in all aspects of valuation. Karen earned both her Bachelors and Masters of Science in Accountancy from Bentley University. Karen is sought after by clients for her meticulous attention to detail and for taking a holistic view of each engagement. In her free time, Karen enjoys traveling the world.
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