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Worried about tax changes after the upcoming election? Here is a great non-partisan resource

September 15, 2020
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Mr. Biden's Tax plan: from taxspeaker.com

Former Vice President Biden’s election website is www.joebiden.com . I went through every posting on the site and have not found a formal income tax policy plan, guide or summary, nor have other publications from either political side. During the campaign Mr. Biden released a number of detailed tax policy proposals and I have tried to discern tax positions based on those proposals in my summary below, just like in other business publications. Because there are no formal positions on Mr. Biden’s website, we are sure to miss some of his ideas. 
 
Some of our readers will incorrectly believe that I am “for” or “against” Mr. Biden. That is incorrect. My job as a tax educator is to present information — you determine whether it fits your own, or your client’s issues. I have had people in the same room come up to me after class and in hateful tones and statements tell me I am a leftist commie pinko (or equivalent), followed by the next person who tells me I am a radical right winger-in the same room! People hear what they want to hear, and hatred is deaf to reality. My skin is thick, and I will fulfill my duty to provide you with unbiased information as best I can. So here it is!
 
C Corporations
The current flat C corporation tax rate is 21%.
 

  • Mr. Biden proposes raising the rate to a flat 28%.

Most C corporate alternative minimum tax has been repealed in the last few years, including 2020’s CARES Act.

  • Mr. Biden would impose a 15% minimum tax on book income over $100 million and would institute a credit for taxes paid to other countries.

 
Estates & Trusts
The current federal estate tax exclusion uses an inflation-adjusted base of $10 million, which equates to the current inflation adjusted amount of $11.58 million. Beneficiaries receive a step up basis in inherited assets equal to the fair market value of the asset at death.
 

  • Mr. Biden would revert back to a $5 million base.
  • Mr. Biden would eliminate the step up in basis for inherited items.

 
 
Individuals
The highest individual tax rate is currently 37%
 

  • Former Vice President Biden proposes to raise the highest rate to 39.6% just for those who would previously have been in the 37% bracket.

Those individuals in the 37% bracket currently pay a 20% capital gains rate.
 

  • The Former Vice President would tax capital gains and qualified dividends at 39.6% for individuals and couples  whose income was over $1,000,000 annually.

 
Currently itemized deductions are available to all Americans.
 

  • Mr. Biden would eliminate itemized deductions for individuals beginning at the 28% tax rate.

Currently individuals enjoy a 20% QBI deduction for flow through business income, subject to certain wage and capital tests at higher income.
 

  • The Former Vice President would phase out this deduction for income over $400,000.

Currently cancellation of debt income is taxable, except under 5 or 6 specific exclusions.
 

  • Mr. Biden would add an exclusion for student loan debt.

Other individual provisions from Mr. Biden:
 

  • Mr. Biden would also establish a new, refundable tax credit for low-income individuals and families designed to hold rent and utility payments to 30 percent of monthly income.

 

  • Mr. Biden proposed the “First Down Payment Tax Credit” providing new homebuyers with a tax credit of up to $15,000.

 

  • Mr. Biden would increase the dependent care credit by making it refundable for those with no tax liability, increasing the maximum allowable expenses to $8,000 ($16,000 for multiple dependents), and increasing the reimbursement percentage from 35 percent to 50 percent. This would increase the maximum value of the credit from $2,100 to $8,000.

 

  • Mr. Biden would restore and make permanent various energy and electric vehicle credits.

 

  • Mr. Biden would extend the earned income credit to childless workers 65 and over.

 

  • Mr. Biden would create a $5,000 tax credit for informal caregivers.

 

  • Mr. Biden proposes to eliminate deductibility for 401(k) and IRAs and replace them with some kind of credit aimed at reducing the benefit as income goes up,

 

  • Mr. Biden proposes several changes on residential rental real estate, including:

 

  • Eliminating the special $25,000 passive rental loss deduction,
  • Restore rental house depreciation lives to 39 years,
  • Eliminate the 1031 like-kind exchange tax deferral rule for those with income over $400,000.

Other Items
 

  • Tighten rules for classifying independent contractors,

 
Social Security
 
The current FICA wage ceiling is $137,700 for 2020.
 

  • Mr. Biden would leave the ceiling alone from $137,700 to $400,000 and then bring it back in for folks earning more than $400,000, who would then be re-subjected to FICA by both the employee and the employer.

 
 
Some planning “quick-thoughts” if Mr. Biden is elected:
 
Because a number of special tax rules are in effect through the end of 2020 as a result of the CARES Act, I would suggest these action considerations:
 

  1. The loss of itemized deductions, combined with a current 100% charity deduction means that higher income folks should consider making next year’s  contributions by year end.
  2. The loss of IRA and 401(k) deductions combined with a decreasing credit means taxpayers need to consider “maxing out” 2020 contributions and deferrals.
  3. The purchase of residential rentals needs to be very, very carefully examined, and their sale by 12/31/2020 should be considered.
  4. C corporations, combined with ordinary rates on their dividends, will really need to be examined for conversion to S corporations by year-end 2020.
  5. The loss of the QBI deduction, combined with a potential increase in tax rates AND FICA tax could combine in 2020 to have devastating effects on some profitable small businesses. For example, $100,000 of additional business income at the highest rate in 2020 will cause $29,600 of tax after the QBI deduction, while in 2021 it could cost $39,000 with the lost QBI deduction and the higher rate, for a 33% tax increase. Summary-report as much income as possible in 2020 and postpone asset purchases until 2021.
  6. That “donut hole” of FICA makes S corporations continue to be a popular election.

 

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