A Brief Analysis of Joe Biden’s Tax Plan
2020 has been a particularly challenging year in a lot of ways, the US (and the rest of the world) has been hit hard by COVID 19. Shutting things down to protect lives was never an easy decision, but the one that had to be made, and the economic ramifications will be felt for years to come.
How the next president handles our recovery is critical.
Both President Trump and former Vice President Biden have started to put together their tax and economic recovery plans. Unsurprising, their tax plans have important key differences.
Here’s a closer look at Joe Biden’s proposed tax plan:
Raised Taxes on Wealthy Americans
Former VP Biden has committed a number of times to raising taxes significantly on the wealthiest Americans in the nation, and to do so within the first 100 days of his new administration.
While not going so far as to advocate for a “wealth tax”, Biden does want to see the highest tax bracket raised from 37% to 39.6%. Biden wants to cap deductions for Americans making north of $400,000, too. Biden has promised he won’t raise taxes on those making less than $400,000 but talks of repealing the Trump Tax Cuts across the board has left some Americans anxious about their tax rates.
QBI (Qualified Business Income) Phase Out
Under current law, the TCJA allows business owners to deduct 20 percent of their annual taxable income by taking the Qualified Business Income (QBI) deduction. Biden plans to maintain the current deduction for taxpayers making under $400,000 per year while phasing the deduction for higher earners.
Increase Corporate Income Tax
Biden proposed tax plan will increase the corporate income tax rate from 21% to 28%. Doubles the tax rate on Global Intangible Low Tax Income (GILTI) from 10.5% to 21%.
Capital Gains Tax
Biden’s plan would first raise taxes on capital gains by treating them as ordinary income for those earning more than $1 million. As such the long-term federal capital gains tax for the highest earners is expected to increase from 23.8% to 39.6%. For residents living in states with state income taxes like California, the overall capital gains tax burden will end up even higher.
Middle Class Recovery Plan
Recognizing that the middle class has been hardest hit by the COVID 19, a targeted tax recovery plan for middle class families is a main priority for the former VP.
An expansion of the Child and Dependent Care Tax Credit to $8000 per child (with up to $16,000 in credits available) would help working class families pay for better child care without high out of pocket costs.
Real Estate Tax Changes
Biden’s tax plan would limit the use of like kind or 1031 exchanges for investors with annual incomes above $400,000. Additionally, changes in capital gain tax rules, QBI deduction rules and elimination of certain bonus depreciation rules might hurt large real estate investors and developers.
Other Tax Changes
There’s also Biden Tax Plans for:
- Out and out forgiveness of student loan tax, with provisions to provide tax credits for the forgiven amount as well
- New plans and programs to help lessen the tax burden for the spouses of military members
- Improved tax breaks and credits for workers that are looking to save for retirement, including boosted assistance for 401(k) programs
- An overhaul of the tax credits available to small businesses, a segment of American ravished by the economic shutdown
The former Vice President plans to unveil more components of his tax and economic recovery plans as we get closer to Election Day.
***Are you a business owner or individual wondering how changes in the tax plan will impact your potential deductions and credits? Call us today at (818) 242-4888 or schedule your free 30-minute consult now. Robert Hall & Associates is a leading corporate and business tax preparer and consultant serving Pasadena, Glendale, Burbank and the Greater Los Angeles area. Our team of enrolled agents can guide you through the business tax planning process and advise you on the documentation you will need.
