With one of the most contentious elections in history behind us, President Biden officially took office on January 20. With a new administration, high earners especially are left wondering - how will the Biden presidency affect me financially? Based on his official campaign platform, past interviews and projections, we can better prepare ourselves for the potential changes to come. Having a financial advisor is highly encouraged during this trial time.
Now that Inauguration Day is over, what challenges could this bring to high earners during a Biden administration?
Challenge #1: Expect Higher Taxes
Much of Biden’s tax plan focuses on raising taxes for high earners, corporations and capital gains. In fact, it’s estimated that approximately 80 percent of tax increases would affect the top one percent of income earners,1 but the other 99%ers are not free from these tax increases. As time goes on, it is apparent that this administration is aiming to target income earners on all levels.
For those earning over $400,000 annually, Biden is projected to raise taxes including individual income, capital gains and payroll taxes.2 Households with an adjusted gross income of $400,000 a year or less will likely see less dramatic tax changes.
Challenge #2: Corporate Taxes May Be Raised
Under Biden’s proposed tax plan, corporate tax rates are expected to rise to 28 percent, up from the current 21 percent. Additionally, he may set a minimum tax of 15 percent on shareholders’ profits and increase the taxes on foreign earnings of companies overseas.3
This proposal is not only scary for corporations, but for ongoing company's seeking the American workforce. As tax rates increase, business have less money to pay workers. Since the pandemic set in over 18 months ago, hundreds of thousands are still seeking work.
Challenge #3: Real Estate Loopholes Could be Eliminated
If rumors that Biden may eliminate the Section 1031 like-kind exchange become true, real estate investors would lose the ability to utilize this common workaround for tax deferment.
These types of exchanges have taken place in the real estate industry for years and have been a part of the IRS code since 1921.4 Under current law, real estate investors can delay capital gains taxes when they sell properties and direct earnings into new investments - assuming they follow the IRS’s regulations as to what defines eligibility for Section 1031 exchanges. This would not only be detrimental for the real estate market, but it could also pose a large problem for the average middle class America.
Challenge #4: Elimination of Fossil Fuel Subsidies
For oil industry executives, the elimination of fossil fuel subsidies could affect your earnings. As of September 2020, this industry is said to be worth $14 trillion in assets.5
Biden is pushing to end U.S. fossil fuel subsidies worth billions of dollars a year in an effort to combat climate change and reach net-zero emissions within 30 years.6
Challenge #5: Reverses to the Tax Cuts and Jobs Act of 2017
The Tax Cut and Jobs Act of 2017 included several advantageous tax changes for high earners and business owners - including dropping corporate taxes from 35 percent to 21 percent.7 Biden is predicted to eliminate some aspects of the TCJA, likely reversing certain tax breaks for corporations and high-earners.
Challenge #6: Raising of Estate and Gift Taxes
Biden has been cited as saying he’d likely restore estate and gift taxes to pre-TCJA levels.2 Any eligible assets gifted above that amount would be likely taxed at a rate of 40 percent - unless the Biden administration changes it otherwise.8
Currently, estates under $11.7 million are able to claim estate tax exemptions, but Biden has been cited saying they would like to push that back down to $5.4 million. This change would obviously effect many more individuals.
Now that Biden has taken office, it's likely we'll start seeing changes shortly. The changes will affect many not just high earners. Regardless of your income, If you’re unsure whether or not your financial situation could be affected, it’s important to reach out to us. Together, we can create a plan and prepare for what may be coming down the line for you and your future taxes.
This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.