Biden’s Tax Plan: Will It Affect You?

The Biden Administration’s expense budget released this May will concentrate on rebuilding the nation’s infrastructure, improving income equality, and extending the social safety net. Rather than strengthening the economy from the top down, the Administration plans to grow the economy from the bottom up and to the middle out. The Biden Administration intends to raise some of these expenditures through increased taxes on the wealthy and corporations, and by improving Internal Revenue Service compliance via enforcement initiatives. The Administration proposes to amass $3.6 trillion over the next decade.
The specifics the Biden Administration want to implement include:
• Raising the income tax level of top-tier earners from 37% to 39.6%
• Decreasing the highest individual income tax bracket from $523,601 to $452,700. The married couple joint filing tax bracket will drop from $628,300 to $509,300
• Capital gains over $1,000,000 will be taxed at the new 39.6% rate plus a 3.8% net investment income tax. Any transfer of property will be treated as a sale of property. This includes gifts and at deaths but excludes transfers to a spouse or charity. There is also the possibility of making the capital gains tax increase retroactive. Although the effective date of the changes will be December 31, 2021, it may become retroactive back to April 28, 2021
• For taxpayers with income over $400,000, carried interest will be taxed as ordinary income
In addition to these points:
• Trusts will be taxed if they have been in existence more than 90 years
• Taxes on family businesses will be deferred so long as the family operates the business
• Taxes on illiquid assets can be paid over 15 years
• Transfers to trusts and partnerships will be taxed as capital gain
Some of these measures will receive opposition from Republicans and some moderate Democrats. These include a retroactive date for the increased rate on capital gains, which would allow wealthy taxpayers to sell off appreciated assets before the year’s end; the 3.8% net investment tax; and the treating of gifts and deaths as recognition events at death.
If you have questions concerning how these changes will affect you, we recommend you meet with your tax professional. As a reminder to our clients, we provide complimentary unlimited tax planning advice year round.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.protaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.