It’s official. The Georgia runoffs left us with a 50 Democrat/50 Republican U.S. Senate, with VP Harris to break tie votes. While this balance doesn’t assure a slam dunk, Biden’s income tax proposals now stand a better chance of scoring than they did before.
What might that mean? The nonpartisan Committee for a Responsible Federal Budget (CRFB) estimates Biden’s tax plan could raise around $3.5 trillion over a decade. “The Biden tax plan is highly progressive,” the CRFB reported, “increasing taxes for the top 1 percent of earners by 13 to 18 percent of after-tax income, while indirectly increasing taxes for most other groups by 0.2 to 0.6 percent.”
President Biden hopes to:
- Raise the maximum individual tax rate to 39.6% (from 37%) and, generally, raise taxes on annual income above $400,000.
- Limit the tax benefit of itemized deductions to 28% (which limits the benefit for taxpayers taxed at higher rates).
- Raise the long-term capital gains tax rate to 43.4% (from 23.8%) for those with more than $1 million annual income. This could significantly affect someone selling a small business.
- Raise payroll Social Security taxes for those earning more than $400,000 annually.
- Eliminate the step-up in basis on inherited assets. For example, the proposed plan would require an heir selling their parents’ house to pay tax on the difference between the heir’s selling price and the parents’ original purchase price (versus its “stepped-up” value on date of death).
- Eliminate the $25,000 exemption for losses on rental income and Sect 1031 like-kind exchanges.
- Increase the child tax credit (with lots of complexities).
- Provide a tax credit of up to $15,000 for first-time home buyers and low-income renters.
- Offer green energy tax incentives for reducing emissions.
- Increase the income tax rate on C-corporations to 28% (from 21%) thus reducing shareholder profits.
- Reduce the estate tax exemption, requiring more families to pay estate taxes.
As a CPA, I’m already thinking through potential tax-wise moves to make. That said, if Congress decides to seek $3 trillion more in taxes, there may be only so much we can do about it. Unless you plan to make less and own less, you might need to plan to pay more taxes in the years ahead.
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