Now that we have the results of the elections, I think we can say with certainty that taxes will rise. Democrats now have thin control of the Senate and the House along with the Presidency which will allow Biden to pass at least some of his proposals.
Here are some of the changes the Biden campaign has proposed that may require tax planning on the part of many taxpayers.
- Raise the top marginal rate back to 39.6% from Trump’s 37%
- Capital gain rates for taxpayers with AGI over $1 million would jump to that same rate of 39.6% from 20%
- Those with earned income over $400,000 will see the OASDI tax of 12.4% imposed again on wages over $400,000 (it is currently capped at $142,800
- Reimpose the “Pease limits” to phase out itemized deductions
- Limit the value of itemized deductions to 28%
- Scale back the qualified business income deductions (QBID). This is currently at up to 20% of qualified business income. Current proposal would end the deduction for those making over $400,000,
- Raise the corporate rate back up to 28% (Cut to 21% by President Trump)
- Eliminate the step-up in basis for inherited assets (this will be a huge tax hit for those families that inherit a parent’s home, even those in lower tax brackets
- Roll the federal estate tax exemption ($11.7 million per individual/$23.4 million per couple for 2021) back to pre-tax reform amounts ($3.5 million per individual/$7.0 million per couple based on 2009 rates)
- Potentially eliminating IRS Code Section 1031 (the “1031 exchange” for real estate transactions)
- End the qualified business income deduction for real estate investors.
- End employers intentionally misclassifying their employees as ‘independent contractors’ to avoid paying employment taxes. (CA has done this and it has caused a myriad of problems)
- I’m hoping that I’m reading this wrong but it appears they intend to eliminate deductions for oil well drilling, as well as those for depletion and domestic manufacturing costs. They are calling those costs subsidies though in the past they were considered business expenses. That will be inflationary. Will be looking hard at those changes to see what is really coming down the line.
That is all I “know” at the moment. Some of these changes may be retroactive till the first of the year but we won’t know for some months whether or not that will even occur.
We will try and pass on new information as it develops.
Here’s to a better year in 2021, from all of us at Aurora Financial Services, Inc.