Below is an overview of current tax laws compared to the proposed plan put forth by Democratic Presidential Nominee Joe Biden.
Overall, Biden’s proposed plan could result in substantially more taxes being paid by wealthy individuals, corporations and business owners. Now is the time to understand the impact that tax reform could have on you or your business and to explore potential tax planning opportunities that are still available in 2020.
U.S. Individual Taxes | ||
| Current Law | Biden’s Plan | |
| Individual Rates | Top individual income tax rate of 37% for taxable income above $400,000. | Reinstate pre-TCJA tax rate of 39.6% for taxable income above $400,000. |
| Capital Gains Rate | Maximum 20% tax rate for long-term capital gains and qualified dividends. Additionally, Net Investment Income Tax of 3.8% for taxpayers above statutory income threshold amounts would apply. | Tax capital gains and dividends at 39.6% on income above $1 million. Net Investment Income Tax of 3.8% would still apply on top of 39.6%. |
| Basis Step-up | Value of property included in gross estate is stepped-up to FMV on the decedent’s date of death. | Repeal of step up in basis at death. Beneficiaries of taxpayer’s estate could inherit assets with large unrealized gains. |
| Itemized Deductions | No overall limitation on itemized deductions. | Restore the limitation on itemized deductions for taxable incomes above $400,000 and cap the tax benefit to 28% of value. |
| Estate Tax | Maximum 40% tax rate, $11,580,000 exemption for 2020. | Restore the tax rate and exemption to 2009 levels – maximum 45% tax rate, $3,500,000 exemption. |
| Qualified Business Income Deduction (Section 199A) | Taxpayers generally allowed to deduct 20% of qualified business income, and 20% of qualified REIT dividends and qualified PTP income. | Phase out the 20% qualified business income deduction for filers with taxable income above $400,000. |
Compensation and Benefits | ||
| Current Law | Biden’s Plan | |
| Worker Classification | Determined using all relevant facts based on control and relationship. | Increase penalties for misclassifying employees as independent contractors. |
| Payroll Tax | Social Security tax applies up to annually adjusted wage base limit ($137,700 for 2020). | Apply an additional Social Security tax on earnings above $400,000. |
U.S. Business Taxes | ||
| Current Law | Biden’s Plan | |
| Corporate Tax Rate | 21% rate. | Increase corporate income tax rate to 28%. |
| Book Minimum Tax | No current provision. | Impose a 15% minimum book tax on companies reporting more than $100 million in the United States. |
| Offshoring Penalty | No current provision. | Impose a 10% tax penalty on companies that move operations overseas. |
| Manufacturing Credit | No current provision.
| Create a 10% “Made in America” tax credit for companies that create jobs for American workers. |
| Real Estate | Taxes on gains of real property are deferred if the property is exchanged for that of “like-kind” (Section 1031). | Rollback tax preference items, such as like-kind exchanges and accelerated depreciation, for real estate investors with incomes over $400,000. End qualified business income deduction for real estate investors. |
| Renewable Energy | Investment tax credit for certain investments in renewable energy, such as solar and wind. Tax credit available for biodiesel and renewable diesel used as a fuel during the tax year. | Expand tax deductions for energy technology upgrades, smart metering, and emissions-reducing investments in commercial buildings. Enhance tax benefits for carbon capture, use and storage. Restore the full electric-vehicle tax credit. |
This post was written by Larry Blair, LeRoy Metz, Steve Seel and Nick Holland.
