This blog talks about the Biden tax plan and what it may mean for high income earners.

Biden Tax Plan (what you need to know)

I’m getting a great deal of questions about the Biden Tax Plan, as House Democrats unveiled their revised proposal several months ago. The aim of these tax increases is to fund social and climate change programs. In this article we’ll discuss Biden estate tax, Biden long term capital gains tax, and the other possible implications of this 2021 tax proposal.

Before we get started, we are financial advisor in Morristown, NJ serving clients across the country. Here are other tax-related blogs that may be of interest to you:

How to pay self-employment taxes

Did your taxes go up?

Save your donation receipts for small contributions!

And now for the feature presentation!

What does the 2021 tax proposal potentially mean for the long term?

Here are the main tenets of the Biden tax plan:

  • 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.

So…what should you do?

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.

For high income earners, the Biden Tax Plan may mean a bigger tax bill. Here is where financial and tax planning are critical for people earning high income.

Ask yourself:

  • Have I taken light of all possible deductions that would apply to my personal financial situations? Does it make sense to look into this, or not?
  • How strategic am I being about taking capital gains in my investment accounts? Are there any changes I could make?
  • When was the last time that I reviewed my estate to see if there are tax-reducing strategies that I should pursue?
  • What are some other ways I could look to increase tax efficiency?

The answers to these questions are not obvious and require a deep dive in your personal situation.

Conclusion on the Biden tax plan

As a reminder, Nothing in this newsletter may be interpreted as tax or legal advice and this information is general in nature.

Whatever happens with the Biden tax plan, the implications for you will be determined largely by your response to this legislation. Financial planning can be a powerful tool as developments with the Biden estate tax and long term capital gains tax evolve over time.

We believe it’s always best to be prepared for any impact that tax legislation may have well in advance and to stay vigilant as changes unfold. As financial advisors in Morristown, NJ, serving clients across the country, we encourage you to peruse the other financial and investment blogs on our site and contact us if you wish to discuss your personal financial situation.

-Judd

Sources
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