TAX CHANGES IF BIDEN WINS
October 14, 2020 - Douglas Myser
Tax changes if Biden wins. Joe Biden has called for rolling back a lot of the Tax Cuts and Jobs Act, which trimmed tax rates. He has proposed raising income taxes and Social Security Taxes on wages over $400,000. Long term capital gains and qualified dividends would be subject to ordinary income taxes -39.6%- for those with income over $1 million and the step up basis at death would be eliminated. For this to happen, not only would Biden have to win, but Democrats would have to capture the Senate and maintain their House majority. Accountants are largely focusing on two slices of Biden's proposals, income taxes and estate-planning. On the income side, Biden calls for raising the top individual income tax rate to 39.6% from 37%, and applying it to taxpayers with taxable incomes over $400,000. Tax changes if Biden wins.
Currently, the Social Security tax is subject to a wage cap of $137,7000 and is adjusted annually. Finally, Biden would also boost rates on long term capital gains and qualified dividends to 39.6%--the same top rate as ordinary income--for those with income over $1 million, according to the Tax Foundation. Currently, the long term capital gains rate is 20% for single households with more than $441,451 in IRS taxable income. The tax rate applies when you sell investments you've held for at least a year. Selling appreciated investments, as well as converting traditional individual retirement accounts to a Roth and paying the income tax at a lower rate now may seem like a good idea if you think taxes are going to rise later. Tax changes if Biden wins.
Avoid knee jerk decisions. The decision depends on how the election turns out and what legislation may follow, as well as your own financial situation. Expect that estate taxes would also be raised back to the historical norms we used to have, prior to the rollbacks by the Trump Administration. That was made clear in policy statements issued by the Biden camp recently.
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