As of today, over a week after the election, we don’t even officially have a confirmed President-Elect of the United States. In the same vein, we cannot predict the future! But we still watch the weather forecast, and likewise we can look at Joe Biden’s proposed tax plans for you, the American taxpayer.
The most overwhelming taxpayer-friendly tax code in my lifetime is the current one, effectuated by President Donald Trump’s Tax Cuts and Jobs Act of 2019 (TCJA). We have small and large business tax benefits, impactful individual tax credits and rates, and the economic proof that money in the hands of the American taxpayer is spent, invested, and distributed more efficiently and effectively than by any government. However, a changing-of-the-guard in the POTUS position will likely change all of this.
Joe Biden’s proposed tax plans announced during his presidential campaign essentially wreaks havoc on the current federal tax code. He wants to punish the corporations and individuals for making a profit by increasing direct and indirect taxes. Yes, these are the same businesses that are in your retirement portfolio and the same “wealthy” people that spend money in the economy that increases available economic capital, rewards entrepreneurial risk and ingenuity, and increases competition that reduces costs to consumers (that’s me and you). Oh, and don’t forget the places you love to shop — online and in-store — they’ll just pass the increased tax on to the consumer (yep, me and you) which takes more money out of our pocket and into the government’s coffers where the phrase “live on a budget” is only a fairy tale.
What is on Joe Biden’s Christmas List?
- Increase the top individual federal tax rates (If you’re reading this, it probably affects you)
- Increase the corporate tax rate from 21% to 28% (this includes small business C-corps!)
- Double the tax rate on foreign-source income of US based multinational corporations from 10.5% to 21% (you might work for, or invest in, these businesses)
- Phase out the best, newly created Small Business friendly “Qualified Business Income” (QBI) 20% deduction (say goodbye to the QBI!)
- Eliminate Capital Gains Rates and force Ordinary Income Tax Rates on capital gains and dividends if income exceeds one million
- Increase Social Security Taxes on employers and employees – 6.2% unlimited over $400,000
- Increasing Estate Tax Rates to 45% and reducing the lifetime exemption from $11+ million to $5 million (estates over $5 million are common, especially if life insurance is included)
- Eliminating the Step-Up Basis of Inheritance which I see every day with ALL my clients. THIS AFFECTS EVERYONE that inherits from anyone. This will make many people VERY unhappy when they get the tax bill for appreciated assets their family members saved for decades!
So…. What should we do??
Contrary to most sane years and “normal times”, you should strongly consider taking more income and fewer deductions in 2020. But this is NOT for everyone! Your situation might be different. And the biggest “wild card” in this deck of uncertainty is that the federal government can change the tax law retroactively to 2020 if they choose! That would wipe out all the 2020 planning and tax moves you’ve already made – it happened back in 1993 so it could happen again!
Let us know if you would like to schedule a tax consultation for 30 minutes or more. We can discuss your best options, talk about current tax law, and maybe even cry together over potential new taxes – you choose!