The last thing that the economy needs post-Covid-19 world is that world getting more expensive. But that is exactly what would happen under democratic presidential nominee Joe Biden’s proposed tax policies. But fear not, we have some simple solutions on what to do, and how to do it.
The Tax Foundation estimates that over the next decade, Biden’s plan would raise tax revenue by $3.05 Trillion, reduce GDP by 1.47 percent over the long term, and reduce jobs by over 600,000. This estimate has been lowered due to the effects of coronavirus, the economic downturn, and new tax credit proposal introduced by the Biden Campaign.
Summary of Joe Biden’s Tax Plan
Biden’s tax plan includes the following payroll tax and individual income tax changes:
- Imposes a 12.4 percent Old-Age, Survivors, and Disability Insurance (Social Security) payroll tax on income earned above $400,000, evenly split between employers and employees. This would create a “donut hole” in the current Social Security payroll tax, where wages between $137,700, the current wage cap, and $400,000 are not taxed.
- Reverts the top individual income tax rate for taxable incomes above $400,000 from 37 percent under current law to the pre-Tax Cuts and Jobs Act level of 39.6 percent.
- Taxes long-term capital gains and qualified dividends at the ordinary income tax rate of 39.6 percent on income above $1 million and eliminates step-up in basis for capital gains taxation.
- Caps the tax benefit of itemized deductions to 28 percent of value for those earning more than $400,000, which means that taxpayers earning above that income threshold with tax rates higher than 28 percent would face limited itemized deductions.
- Restores the Pease limitation on itemized deductions for taxable incomes above $400,000.
- Phases out the qualified business income deduction (Section 199A) for filers with taxable income above $400,000.
- Expands the Earned Income Tax Credit (EITC) for childless workers aged 65+; provides renewable-energy-related tax credits to individuals.
- Expands the Child and Dependent Care Tax Credit (CDCTC) from a maximum of $3,000 in qualified expenses to $8,000 ($16,000 for multiple dependents), and increases the maximum reimbursement rate from 35 percent to 50 percent.
- For 2021 and as long as economic conditions require, increases the Child Tax Credit (CTC) from a maximum value of $2,000 to $3,000 for children 17 or younger, while providing a $600 bonus credit for children under 6. The CTC would also be made fully refundable, removing the $2,500 reimbursement threshold and 15 percent phase-in rate.
- Reestablishes the First-Time Homebuyers’ Tax Credit, which was originally created during the Great Recession to help the housing market. Biden’s homebuyers’ credit would provide up to $15,000 for first-time homebuyers.
In a nutshell, if you make over $400,000 dollars, congratulations, your job is now figuring out a strategy on what to do to reduce your taxes. Luckily, we have you covered.
If you have loses, carry them over to 2021 under Biden’s higher tax rates.
In Estate planning, Biden wants to bring back double taxation of estates. The current exception amount is $11.58M, Biden’s proposal is $3.5M…if you are waiting to estate plan…don’t!
On the income tax side, push as much in 2020 under the trump rates as possible; take bonuses, convert your Roth IRA’s, differed comp. plans, and sell businesses. Do not wait, start today with your tax or financial advisor.
If you do not have one…we can point you in the right direction….and if you qualify we can save you up to $0.35 on every dollar you would have to pay to Uncle Sam.