What does a Biden Presidency mean for your Income Taxes?

Please don’t take this as a commentary on who should be the next President. This is a commentary on the fact that you should consider reviewing your tax plan and if we have a Biden Presidency and a Democrat lead Congress and Senate, the chances are pretty certain that our tax code will once again change.
Joe Biden’s new tax plan would aim to generate over $3.8 trillion in tax revenue over the next 10 years. (That’s approximately $380 billion per year!) How? Through significantly raising taxes and eliminating tax loopholes, some previously provided by President Trump Tax cuts. This tax plan, according to the Tax Foundation’s General Equilibrium Model, would reduce the US’s Gross Domestic Product (GDP) 1.51% in the long term, amounting to 585,000 fewer full-time jobs in the future. Almost all taxpayers would see a decrease in their after-tax income.
Some of Biden’s proposals:
  • Raising the top tax bracket from 37% to 39.6%.
  • Treating capital gains over $1 million as ordinary income, effectively doubling the top rate on long-term capital gains from 23.8% to 43.4% (the 39.6% top income rate + 3.8% Net Investment Income Tax). And don’t forget to add CA’s top tax of 13.3% which could bring Capital Gains on the sale of your home in CA to over 56%.
  • Eliminating the step-up basis in capital gains. This means that when someone dies, his/her heirs will no longer be able to minimize capital gains taxes when selling stock, real estate, or any other asset. (This is a huge deal!!) – Currently, there are no taxes on capital gains taxes upon death. Imagine having to pay 43.4% + CA taxes (up to 56%) when your heirs sell something they inherited? This will affect everyone who owns their own home or any investments. And inheritances would still be subject to Estate Taxes as well.
  • Creating a doughnut hole by implementing a new tax on Social Security. Earnings over $400,000 will also have to pay the 12.4% SS / Payroll tax. Currently, only income up to $137,700 is subject to SS withholdings. So, earnings between $137,700 and $400,000 will continue not to be subject to SS taxes.
  • Capping the tax benefits of itemized deductions to 28%. This means limiting itemized deductions for taxpayers higher than the 28% tax bracket.
  • Increasing the corporate income tax rate to 28% (currently 21%) – This means that Corps will pay 28% on their profits and then individuals will pay a 2nd tax on those same profits that are distributed to shareholders. Of course, the same holds true now, just at a lower rate.
  • Eliminating the 1031 exchange tax loophole in real estate. This would be a massive new tax for all of you real estate investors.
  • And many more tax proposals targeting successful businesses and individuals.

What can you do to prepare? Proper tax planning can always mitigate your current and future tax burden. I have found that most people know 2-3 tax mitigation strategies, while there are over 10 simple tax mitigation strategies in the US tax code that are available to most.

“What’s better than a high income in retirement? Receiving most of that income Tax-Free.” – Jeff Gurman

I have been advocating building tax-free income streams for 30 years, so it won’t matter how high taxes are when you retire, tax-free will always be taxed at 0%.

Please let me know if you would like a tax planning check-up and see if you are eligible to lower your taxes. 310-417-9040.

-Jeff Gurman

The statistics above are provided by the Tax Foundation. The information above is not to be construed as tax, legal, or investment advice. That advice can only be provided by independent tax, legal, or investment advisors. CA Insurance License #0815028.

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