What tax modifications can we anticipate beneath President Biden? – Press Enterprise

People generally feel comfortable and secure when their life is stable, predictable, and full of security. This year will be remembered for all the drastic changes.

We saw a pandemic, a stock market crash and the election of a new president within eight months. Our world was unpredictable, insecure and unstable. In summary, 2020 was a year of change.

Fortunately, the stock market bounced back from its all-time lows towards the end of this year, COVID-19 vaccines are around the corner and the elections are now over.

Many unknowns will still exist at the beginning of 2021. We don’t know what long-term impact COVID-19 is having on our economy or how quickly the logistically challenged vaccines will be delivered to 7.8 billion people around the world.

What we can expect is that new tax laws will be proposed under the new administration of President-Elect Joe Biden. Biden’s current plans include many changes to our current wage tax, individual income tax, estate and gift tax laws. According to taxfoundation.org, we should be prepared for:

A Social Security wage tax of 12.4% on wages over $ 400,000. This would create a “donut hole” in the current Social Security wage tax, where wages between $ 137,700 the current wage ceiling and $ 400,000 are not taxed. However, income tax of 12.4% would be reintroduced for earnings above $ 400,000. The Motley Fool estimates this would gross in between $ 797 and $ 1.04 trillion over the next decade.

The highest individual income tax rate for taxable income over $ 400,000 will revert to the pre-tax cut and jobs law of 39.6% from 37% under applicable law. For the 2020 tax year, this peak marginal rate will apply to earned income over $ 518,400 for single applicants and over $ 622,050 for married couples filing together.

Long-term capital gains taxes and qualifying dividends will be increased to the normal income tax rate of 39.6% for income over $ 1 million, and will remove the increase in the capital income tax base.

Expect to restore the pease restriction on individual deductions for taxable income over $ 400,000. As part of the pease restriction, the individual deductions for the high income taxpayer are reduced by less than 3% of adjusted gross income above a set income threshold or by 80% of the applicant’s allowable individual deductions.

A limit of 28% for individual prints. For every dollar of reported tax deductions, including charitable contributions, a taxpayer or married couple filing together would receive a maximum benefit of only $ 0.28. This 28% limit would apply even if an applicant pays a higher marginal tax rate.

Eliminate qualifying business income allowance (Section 199A) for applicants with taxable income greater than $ 400,000. Under the current state of the law, small business owners can use the Qualifying Pass-Through Business Deduction to deduct up to 20% of their business income under the TCJA, which is capped at $ 163,300 for single applicants and $ 326,600 for joint applicants in 2020.

However, for individuals and couples earning above these thresholds, there are a variety of rules that determine whether or not you can make qualified deductions for business income. Biden’s plan aims to make this easier by maintaining QBI deductions for those with incomes less than $ 400,000, but phasing out pass-through deductions for those with incomes greater than $ 400,000.

Extending the tax credit for children without children aged 65 and over and granting tax credits for renewable energies for individuals.

If economic conditions so require, the child tax credit could increase in 2021 from a maximum of $ 2,000 to $ 3,000 for children aged 17 and under, while a $ 600 reimbursement threshold of $ 2,500 for children under 6 USD and 15% phase-in rate.

Expanded child and dependent care tax credit from a maximum of $ 3,000 in qualifying expenses to $ 8,000 ($ 16,000 for multiple dependents) and increased the maximum reimbursement rate from 35% to 50%.

Reintroduction of the First Time Buyer Tax Credit, originally created during the Great Recession to help the real estate market. Biden’s Home Buyer Credit would earn up to $ 15,000 for first-time buyers.

Aligning the tax benefits of traditional retirement accounts like 401 (k) s and individual retirement accounts by providing a refundable tax credit instead of traditional deductibility.

Extend estate and gift taxes by reducing inheritance tax exemption to $ 3.5 million from the 2020 limit of $ 11.58 million and increasing the maximum estate tax rate from 40% to 45%.

Limitations on raising the basic rules. An increase in base refers to the cost base of any asset or property that is transferable to an heir after death. If a person bought a home for $ 300,000 but it was worth $ 600,000 at the time of death, the heir would pay capital gains on anything over $ 600,000 if the home was sold. If Biden’s proposal became law, heirs would pay capital gains on anything over $ 300,000.

Removed the limit on state and local taxes to be deducted to $ 10,000.

According to the Tax Foundation’s General Equilibrium Model, Biden’s proposal, in its entirety, would raise $ 1.553 trillion from 2020 to 2029. Ultimately, this tax plan would reduce the size of the economy by 1.62%. The plan would reduce the share capital by about 3.75% and lower total wages by just over 1%, which would result in about 542,000 fewer full-time jobs.

It’s important to note that if Democrats hold a majority in the House of Representatives and Republicans hold a majority in the Senate, any new tax legislation is likely to require a compromise by both parties, which limits the scope of implementation.

We don’t know what will happen next year. But we can use the knowledge we have today to make positive decisions about our future. If the proposals under the administration of President-Elect Biden could have an adverse effect on you, arrange a meeting with your estate planning attorney, tax advisor, or financial advisor.

Although we are unable to predict with certainty the stability of our lives, we still have a small window of time this year to use effective tax and estate planning techniques. A change that we can control.

Teri Parker CFP® is Vice President for CAPTRUST Financial Advisors. She has worked in financial planning and investment management since 2000. You can reach them by email at [email protected].