By Chris J. Scoggin, CPA
As of this writing, we are less than three weeks away from the presidential election. So, by the time you read this article, this election season may already be wrapped up. This analysis is not intended to influence any reader but may be useful in understanding the tax proposals that will, no doubt, be discussed in the coming months.
In his speeches, Vice President Biden has said that he would repeal the Tax Cut and Jobs Act of 2017, also known as the Trump Tax Cut. Biden has also been adamant that he would not raise taxes on anyone making less than $400,000. There are some inconsistencies in these two statements, but here are some specific changes that the Biden-Harris plan has identified as priorities, if elected:
• Increase the top individual tax rate from 37% to 39.6%. This would increase marginal taxes on married filers making more than $622,000 and single filers making more than $518,000. For a married couple earning $750,000 after deductions, this would result in a $3,450 tax increase.
Limit itemized deductions
The Biden plan limits itemized deductions to an 28% tax benefit. Thus, if you were in the 35% tax bracket and donated $1,000 to charity, you could only receive a tax benefit of $280 instead of the anticipated $350. The Biden plan would also gradually phase out itemized deductions for taxpayers earning more than $400,000.
Expand individual tax credits
These expanded tax credits would apply to: renewable energy, New Markets Tax Credits for investment in low-income communities, $8,000 tax credit for Individuals with children in child care and expansion of the Earned Income Tax Credit for workers over 65.
• Increase Capital Gains Tax from 23.8% to 43.4% for taxpayers earning over $1 million
• Increase payroll taxes (Social Security and Medicare tax) for taxpayers earning over $142,800
• Eliminate step-up in basis for inherited assets like real estate and other non-IRA (IRD) investments
• Reduce the total estate exclusion amount for Estate and Gift Tax from $11.58 million to $5.79 million.
• Increase the flat tax rate for C Corporations from 21% to 28%
• Create a 15% Minimum Book Tax Rate for companies with more than $100 million in book net income
• Increase employer-paid Social Security tax on employees earning more than $142,800.
The Biden Harris plan has other elements that have not been quantified at this time, such as reducing tax incentives on “tax havens,” equalizing tax benefits of defined contribution retirement plans and imposing a financial transactions tax.
As you might imagine, with the passing of the Tax Cut and Jobs Act of 2017, President Trump was able to successfully implement almost all of his priorities during his first term. Therefore, the tax plan for the incumbent president and vice president is much more succinct. Based on his stated priorities, here are the tax-related initiatives, if re-elected:
• Reduce taxes for middle class taxpayers (joint filers making between $80,250 to $326,600 and individual filers earning $40,126 to $163,300) to 15% tax rate from the current 22% or 24% tax rates
• Permanently reduce payroll taxes and forgive employee-paid Social Security and Medicare taxes for the last four months of 2020
At this time, there are no proposed changes to business taxation laws by President Trump.
If the uncertainty of the changing tax environment has you concerned and would like specific advice and an action plan, please feel free to call one of our CPAs at Chaston Tax and Accounting.