With one of the most contentious elections in history behind us, President-elect Joseph R. Biden, Jr. is set to take office on January 20. It is also now clear that Democrats have won control of both the House and Senate, and high earners in particular are left wondering - how will the Biden presidency affect me financially? Until Biden takes office and begins enacting changes, we won’t know for sure what to expect. But based on his official campaign platform, past interviews and projections, we can begin to prepare ourselves for the potential changes to come.
With Inauguration Day on the horizon, what challenges should high earners anticipate from a Biden administration?
Challenge #1: Expect Higher Taxes
Much of Biden’s tax plan focuses on raising taxes on high earners, corporations and capital gains. It’s estimated that approximately 80 percent of tax increases would affect the top one percent of income earners.1
For those earning over $400,000 annually, Biden is expected to raise taxes including individual income, capital gains and payroll taxes.2 Households with an adjusted gross income of $400,000 a year or less will likely see less dramatic tax changes, if any changes at all.
Challenge #2: Corporate Taxes May Be Raised
Under Biden’s proposed tax plan, corporate tax rates are expected to rise to 28 percent, up from the current 21 percent. Additionally, the Biden administration may set a minimum tax of 15 percent on shareholders’ profits and increase the taxes on foreign earnings of companies overseas.3
Challenge #3: Real Estate Loopholes Could be Eliminated
Biden has proposed eliminating the Section 1031 like-kind exchange for real estate investors with an AGI over $400,000. These types of exchanges have been a part of the IRS code since 1921.4 Under current law, real estate investors can delay capital gains taxes when they sell properties and direct earnings into new investments - assuming they follow the IRS’s regulations as to what defines eligibility for Section 1031 exchanges.
Challenge #4: Elimination of Fossil Fuel Subsidies
For oil industry executives, the elimination of fossil fuel subsidies could affect earnings. As of September 2020, this industry is said to be worth $14 trillion in assets.5
Biden has proposed ending U.S. fossil fuel subsidies worth billions of dollars a year in an effort to combat climate change and reach net-zero emissions within 30 years.6
Challenge #5: Reversals to the Tax Cuts and Jobs Act of 2017
The Tax Cut and Jobs Act of 2017 included several changes advantageous to high earners and business owners - including dropping corporate taxes from 35 percent to 21 percent.7 Biden is predicted to eliminate some aspects of the TCJA, likely reversing certain tax breaks for corporations and high-earners.
Challenge #6: Estate and Gift Taxes May Increase
Biden has been cited as saying he’d likely revert estate and gift tax lifetime exemptions to pre-TCJA levels, meaning that a wider swath of estates would be subject to these taxes.2 Any eligible assets above the lifetime exemption amount would likely be taxed at a rate of 40 percent.8
We could begin seeing changes soon after Biden takes office. As always, Aegis will engage in proactive tax planning on your behalf, to help you prepare for what may be coming down the line for you and your future taxes.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.