This past week, the national news networks have declared Joe Biden the next President of the United States. And although Donald Trump would beg to differ, let’s assume the networks are correct. On today’s show, I want to start to look into the Biden tax plan. No politics, just the facts. This week, we will talk about the tax increases, and next week (pending no major news), we will talk about the tax decreases.
Ok, let’s start with Income Tax Rates.
- Although there would be changes here it really only affects the top bracket.
- The rates of 12% to 35% stay the same
- The top rate does increase from 37% to 39.6%. If you remember, this is the same rate as before 2018.
What about long term capital gain rates?
- Biden’s plan would increase capital gain rates and qualified dividend rates from 20% to 39.6%
- This increase would only affect those with income of $1,000,000 or more.
- The rest of us would still have rates of 0% to 15%
Next – payroll taxes like Social Security and Medicare?
- Right now you pay Social Security tax on the first $137,700 of wages.
- Under the Biden plan, this would continue until $400,000
- Income over $400,000 would again pay Social Security tax.
- So you would not pay Social Security tax on wages or SE income between $137,700 and $400,000
- You pay Medicare tax on all your wages and SE income.
Qualified Business Income (QBI) Deductions –
- As you may remember, this is a 20% deduction that is calculated based on business income.
- The Biden plan would phase-out the 20% deduction for those taxpayers with over $400,000 in income.
Then there will be changes to itemized deductions?
- This one is hard to explain in simple terms, but it will decrease the amount of itemized deductions for those who have income over $400,000.
- It will also make the deductions that are left less beneficial, by limiting them to 28% rather than the higher income tax bracket that they are in.
What about corporations?
- Back in 2018, the corporation rate was decreased from the highest rate of 35% to 21%
- The Biden plan would increase this to 28%
- It would also bring back a minimum tax to those businesses who have over $100 million in profit
Looks like changes to the estate tax also.
- Right now the estate tax rate is 40% of any assets over $11.58 million
- This would change a lot.
- It would increase the rate to 45% and decrease the asset exemption to $3.5 million
- To put this in real numbers, if someone dies with an estate of $11.58 million they pay no estate ta right now. Assuming the Biden plan passes, the estate tax would be over $3,600,000
As a partner, I have thorough experience providing tax services to individuals, privately held businesses, nonprofit entities and estates and trusts. I also provide compilation and review services.
