A great article published by Moss Adams LLP breaks down the potential tax changes once Joe Biden takes office. Currently, Democrats are in control of the House of Representatives. Democrats control of the Senate won't be determined until after the Georgia runoff (there was no majority winner for Senate seat in GA), January 5th, 2021. At that point, Biden's tax proposals will likely become law should a 50/50 Democratic/Republican Senate occur as VP Kamala Harris will be the tie breaking vote. However, the President can implement tax policy through Executive Orders or Treasury Regulations.
Biden's Tax Proposals and How They Impact:
Proposed increases and preference eliminations aimed at high income tax payers and multinational businesses.
Proposed Corporate tax rate of 28% (vs 21% currently) will still be lower than the pre-2017 tax reform act (TJCA). 15% minimum tax impacting the most those corporations with >$100M income.
Qualified Business Income deduction (QBI) for individuals who own pass through entities (Sole Props, Partnerships, S Corps) could be phased out for owners with income >$400k.
Capital Gains Tax bracket could increase eliminating favorable tax treatment for the highest income earners.
Entity choices – Higher corporate tax rates and less substantial individual tax rate increases could drive more towards pass through entities.
Credits and incentives to be expanded for small businesses and working class such as a 10% made in America tax credit for those companies that create American jobs or increase wages to above pre-COVID-19 baseline.
Tax increase for higher income taxpayers with the top income tax rate potentially returning to pre-2018 rate of 39.6%.
Itemized deductions limited to 28% of AGI
Return of the 3% phaseout of itemizations for high income taxpayers
Expansion of Individual Tax Credits such as child tax credit, child care tax credit, reinstating first time home buyer’s credit
Other Tax Provisions:
Retirement Accounts – aim to increase access and employer participation by subsidizing establishment of additional employer plans, and incentivizing lower income earners by changing deduction to a credit.
Payroll Taxes – imposing on those earning >$400k and no longer imposing payroll tax on those earning between $137,700 and $400,000.
Click here for the full article What to Expect from a Biden Administration and Its Tax Proposals.