Joe Biden has released his tax proposal as part of his campaign literature. As always, a proposal set forth by a campaign is a vision and general outline of the policy objectives he would pursue as president. However, there are enough specifics that clients and advisors should be aware of in order to plan ahead should Biden win the election. In most cases, changes in tax law are applied on a prospective or forward basis but there is always a chance that some provisions could be applied retroactively. Should some of the proposals become law, they could take effect as of January 1, 2021. Clients will need to be ready to quickly address their income and estate planning depending on the results of the election.
The chart below summarizes the Biden tax plan compared to current law.
What it all means?
Those with adjusted gross income in excess of $400,000 will see a significant increase in tax under the Biden’s income tax proposal. The proposal specifically targets those with AGI over $400,000 by:
- Increasing the top individual tax rate to 39.6 percent.
- Reinstating the limitation on itemized deductions for those with income above $400,000.
- Phasing out the qualified business income deduction for those with taxable income above $400,000.
- Imposing the social security tax on wages over $400,000.
- Eliminating the preferred rate on long term capital gains and qualified dividends for taxpayers with income over $1 million.
- It is not clear if the preferential tax rate would apply to gains under $1 million or if only gains over $1 million will be taxed at the top individual tax rate.
It is unknown whether any of the proposal would become law or even how soon a new tax law would become effective. Even with a Biden victory and a supportive Congress, there is no guarantee that his proposal will be the final law. In any event, it should not stop you from discussing planning strategies with your tax advisor to be ready to act should the circumstances warrant.
Please contact your Mazars professional for additional information.
Published on October 30, 2020