During the long campaign that just finished, Pres. Biden talked quite a bit about tax changes he would enact. Since one party now controls the House, Senate and Presidency, there is a better chance than normal that we may see some of these changes coming.
Of course, we don’t know exactly what will happen and when. Tax laws have to go through the process of Congress approval, Senate approval and the President’s signature. And normally tax laws are not retroactive, unless they are extending expired tax laws that had been allowed to lapse.
Usually there is some notice to big changes. Don’t panic if you see something that could impact you. However, it’s good to have a Plan B in mind.
Here are some of the campaign promises from Pres Biden that will impact taxes:
- Increase C Corp federal tax rates from 21% to 28%,
- For companies with over $100 mill in net income, a corporate minimum tax of 15% (similar to AMT),
- Increase the GILTI (Global Intangible Low-Tax Income tax rates) from 10.5% to 21% (this makes it even more expensive to move a company offshore),
- Increase individual top tax rate to 39.6%,
- Payroll tax of 12.4% on earned income over $400K (there will still be a gap in payroll tax from $137K to under $400K),
- Increase top capital gains rate to 43% (taxpayers with income over $1 mill)
- Limit itemized deductions (including charity) to 28% of AGI,
- Eliminate the Sec 199A 20% deduction for incomes over $400K (not sure if this is taxable income like the original law referenced),
- First-time home buyers get a tax credit of up to $15K,
- Increase child care tax credit from $2,100 to $8,000 per dependent,
- Eliminate step-up basis for inherited property (Huge if this goes. Estate planning just changed big time),
- Eliminate tax exempt like-kind exchanges for real estate (yikes),
- Increase estate and gift tax rates (currently 40%),
- Decrease estate tax exemption from $11.58 mill to $3.5 mil and lifetime gift tax exemption from $11.58 mill to $1 mill,
- Add tax credits for activities involved with reducing climate change such as electric vehicle credit, residential efficiency credit, solar investment credit, and
- Add tax credits for renters, low-income earners and taxpayers age 65 and older.
Once we know exactly what the laws will be, there will be strategies to prepare. My best advice right now is stay informed. Keep your plans flexible, as much as you can.
The people most impacted by these changes will be people with estates over $3.5 million and/or income over $400,000.