Possible Tax Changes Under a Biden Administration
While these would be future changes and would need to be approved by Congress, here are some of the proposed changes to be aware of:
Increase Corporate Tax Rates. Under the TCJA, the peak marginal corporate tax rate was reduced from 35% to 21%. Under the Biden tax plan, the corporate tax rate would be increased to 28%.
Increase the marginal tax rate for top earners. Biden’s tax plan would raise the top marginal income-tax bracket from 37% to 39.6% (please note that the TCJA lowered the top marginal bracket from 39.6% to 37% in 2018).
Raise the capital gains tax on filers with incomes above $1 million. Biden’s tax proposal calls for filers with over $1 million in income to pay ordinary tax rates on their gains, no matter how long they’ve held an asset. This would imply 39.6%, plus the Net Investment Income Tax (NIIT), for a total tax rate of over 43%.
Limit itemized deductions. Biden’s tax plan includes a cap on itemized deductions of 28%. This means for each dollar of itemized tax deductions, including charitable contributions, a taxpayer or couple filing jointly would only receive a maximum benefit of $0.28. This 28% limit would hold true even if a filer is paying a higher marginal tax rate.
Phase out small business income deductions over $400,000. Biden’s tax plan aims to keep Qualified Business Income (QBI) deductions in place for those with less than $400,000 in earnings but phasing out pass-through deductions for those with over $400,000 in earnings. Eliminate step-up in basis. A step-up in basis refers to the cost basis of assets or property transferrable to an heir upon death. If, as an example, an individual purchased a home for $300,000, but it was worth $600,000 at the time of their death, their heir would pay capital gains on anything over $600,000 if the home were ever sold. If Biden’s tax proposal were to become law, heirs would not “inherit” a stepped-up cost basis.
Reduce Estate Tax exemption. Biden’s tax plan wants to reduce estate tax exemptions back down to $3.5 million immediately. This means estates over that value would be taxed.
For informational purposes only. You should discuss your situation with a qualified tax professional.
This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.