Berntson Porter Coronavirus Resource Center Details

Newsletters

LIKE WHAT YOU READ? Share this article :

Fall Update: Insights Into Potential Tax Policy Changes for November 2020 Election

|

As we head into the fall, the professionals at Berntson Porter are starting to get more questions about potential tax and legislative changes due to the upcoming 2020 Election. With the Tax Cuts and Jobs Act (or “TCJA”) of 2017 and the CARES Act of 2020, we have seen significant and fast-moving changes to the tax law over the last few years, which matches our changing economic and political landscape. Adding to the uncertainty is that Joe Biden’s proposed federal tax agenda is still emerging, presenting another unknown for businesses and families this fall.

Note that this BP Blast solely addresses Biden’s potential tax reform changes, and does not consider any potential future tax updates from Trump.

Summarized below is a high level overview of Biden’s potential tax reform changes for individuals and businesses, focused on items most relevant to the clients we serve. Important to note: it is not just up to the President to pass new tax law. New tax legislation begins its path forward through Congress via the House Ways and Means Committee. Hearings are then scheduled with various groups, including the Secretary of the Treasury, and proposals are marked up and reviewed by the Senate Finance Committee, with the final bill going to the President to sign or veto.

Potential Tax Changes for Individuals and Families under Biden’s Tax Plan:

·    For taxpayers with taxable income in excess of $400,000, regardless of filing status:

·    An increased top tax bracket on ordinary and earned income to the pre-TCJA rate of 39.6% from the current top rate of 37%.

·    The phasing out of Section 199A (20% qualified business income deduction).

·    Payroll taxes – Currently, the 12.4% social security tax is capped on income up to $137,700 and this ceiling is adjusted annually for inflation. Biden’s proposal would subject all wages above $400,000 to the payroll taxes. Taxpayers earning wages between the current $137,700 and $400,000 would not pay this tax.

·    For incomes over $1 million, elimination of the 15% and 20% preferential rate on capital gains and qualified dividends; capital gains could be taxed at a rate as high as 39.6%.

·    Also potentially eliminated: basis step up at death or taxation of unrealized gains for estates, and potential reversion of lifetime estate and gift tax exemption amounts to pre-TCJA levels (currently $11.58 million, but reduced to $5.79 million, as adjusted for inflation).

·    Restoration of credits, including plug-in electric cars credits (which is being phased out), residential and solar energy credits, and expanded tax credits for child and dependent care, informal caregivers, and assistance for purchasing a first home.

·    Potential Treasury review of the Opportunity Zone Program (and related benefits), use of passive real-estate losses, and potential repeal of Like-Kind Exchange rules for real estate investors.

Potential Tax Changes for Corporations and Businesses under Biden’s Tax Plan:

·    Increased statutory Corporate tax rate from 21% to 28%.

·    Imposition of a 15% minimum tax for corporations with at least $100 million in “book profits.”

·    New tax credits and incentives to encourage domestic manufacturing, including incentives to shift product mix to critical products manufactured in the United States.

·    An increase in certain international tax rates (including GILTI income) and an end to certain TCJA incentives allowing multinationals to pay lower taxes on incomes earned overseas.

·    Expanded tax credits for small business owners and industry specific credits (Energy and Pharmaceuticals) to further underlying policy goals.

·    New Manufacturing Communities tax credit to incentivize investment and modernization of manufacturing facilities in certain geographic areas.

We hope the above provides a general understanding of what future tax reform could look like this fall, with the caveat that there are still many unknowns.

Whatever the outcome of the November election, it is clear that year-round tax planning for your family and business needs are more important than ever. Your Berntson Porter team is here to help.  BP will also be hosting a Post-Election Webinar series beginning November 4th to provide you greater insight into the political and economic landscape in 2021 and beyond. Visit bpcpa.com/events to learn more or email aellisor@bpcpa.com to pre-register. As we continue to learn more about potential tax and legislative changes this fall, we will reach out with tax savings and business planning ideas! Our year-end tax planning process for clients will be starting soon; we look forward to helping you during these unprecedented times.

Berntson Porter is here to help businesses navigate these challenging times. Visit our Resource Center for up-to-date information about COVID-19 legislation that impacts you and your business.