I’m getting a great deal of questions about the Biden Tax Plan. House Democrats recently unveiled their revised proposal. The aim of these tax increases is to fund social and climate change programs.
Here are the main tenets:
- Those who would actually see an increase in income tax are the highest income earners, whose tax rate would rise from 37% to 39.6%. This would apply to people earning more than $400k and couples earning more than $450k a year. These individuals would also see a new, higher long term capital gains rate, up to 25% from the previous 20% (this applies to the sale of long term assets and to qualified dividends).
- The corporate tax rate for the highest earning businesses would rise to 26.5%.
- People earning more than $5 million a year would face a 3% surtax, and a capital gains rate increase from 20% to 25%.
- Pass-through businesses will pay 3.8% tax on their active business income.
- The plan also calls for a lower exemption amount for estate taxes. The amount that you can leave to the next generation without tax will be reduced significantly.
What should you do?
To be very clear, these are proposed changes; they have not yet come into effect. It’s hard to tell if the Biden Tax Plan will actually pass. Right now it’s being negotiated behind closed doors, and we may not know until fairly late in the year.
The best thing to do is to get clear about your goals with the assumption that these changes will be in effect. Have a conversation with your tax, estate, and financial professionals about actions you may need to take. You may suddenly be called to take these actions before year end, depending upon when the new policy potentially becomes effective.
As always, nothing in this newsletter may be interpreted as tax or legal advice. You should always consult with your advisor for recommendations specific to your situation.
Franck, Thomas. (2021, July 7th).CNBC. Biden’s plans to raise taxes on corporations and the wealthy are losing momentum. Retrieved from https://www.cnbc.com/2021/07/07/biden-tax-plan-corporate-capital-gains-and-income-hike-uncertain.html
Pramuk, Jacob. (2021, September 13th). CNBC. House Democrats propose new tax hikes to pay for their $3.5 trillion bill: Here are the details. https://www.cnbc.com/2021/09/13/house-democrats-propose-tax-increases-in-3point5-trillion-budget-bill.html
Rubin, Richard. (2021, September 13th). Wall Street Journal. Democrats release details of proposed tax increase. https://www.wsj.com/articles/democrats-release-details-of-tax-increase-11631539532