Summary of President-elect Biden’s tax proposals and potential impacts on businesses, individuals

Though the election has come and gone, very little has been resolved in terms of which political party, if any, will be able to dictate legislation in 2021. Barring any recount or court challenge, President-elect Joe Biden will take office in January, though the U.S. Senate may still be under Republican control depending upon the outcome of Georgia run-off elections.

If Congress remains split, it will certainly hamper Democrats’ ability to push through their tax agenda – this doesn’t mean, however, that you should wait to start considering how the potential changes may impact you and your business.

Throughout his campaign, Biden expressed strong support for significant change to federal tax policy in the United States. While “significant change” often means tax rate or bracket adjustments rather than true reform, the impact on the amount of tax you owe could be significant.

Below is a summary of noteworthy individual and business proposals included in the Biden tax plan.

Individual tax proposals

Although the Biden individual tax plan would undoubtedly raise taxes for specific groups of taxpayers, it is centered on the idea of not raising taxes for those making under $400,000 a year. It is unclear how the threshold would be implemented (namely, would the $400,000 limit apply equally to a single individual versus a married couple), but it is a promise Biden reiterated numerous times throughout his campaign.

With that in mind, the individual proposals include:

  • Raising the top individual tax rate from 37% to 39.6%
  • Taxing qualified dividends and capital gains at ordinary income rates (presumably 39.6%) for taxpayers earning more than $1 million
  • Phasing out the 20% qualified business income deduction for partnership and S-corporation income for taxpayers earning over $400,000
  • Limiting the value of itemized deductions for taxpayers in income tax brackets above 28% and reinstating itemized deductions limitations that were eliminated as part the 2017 Tax Cuts and Jobs Act
  • Subjecting all wages or self-employed income over $400,000 to the 6.2% social security payroll tax for both the employee and the employer
  • Eliminating the step-up in basis for inherited assets
  • Reestablishing the first-time homebuyers’ tax credit for up to $15,000
  • Expanding certain residential and vehicle energy credits

Business tax proposals

The Biden business tax plan is centered on three main ideas: rolling back corporate tax cuts from the 2017 Tax Cuts and Jobs Act; using the tax code to incentivize domestic manufacturing; and promoting renewable energy.

The business proposals include:

  • Raising the corporate tax rate from 21% to 28%
  • Creating a new 15% minimum tax based on book income for corporations with $100 million or more in net income
  • Increasing the global intangible low tax income (GILTI) rate on foreign subsidiaries owned by U.S. companies
  • Limiting like-kind (1031) exchanges used by the real estate industry
  • Creating a new 10% surtax on corporations that offshore manufacturing to foreign countries in order to sell goods or provide services back to the United States
  • Creating a new 10% “Made in America” tax credit for companies that create jobs for American workers
  • Eliminating certain tax preference items for the oil and gas industry
  • Expanding several current energy investment and renewable energy tax credits

While it certainly is not clear how many of the above proposals will find their way into law, and it remains uncertain when exactly any tax changes would go into effect, it is still important to consider these items during year-end tax planning. We’re here to help make sense of these uncertainties and your specific tax position. To discuss further how these potential changes could impact you and your business, contact your service team or Tony Licavoli at anthony.licavoli@rehmann.com.

Published in Tax

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