With the new administration, high earners may be wondering how the Biden presidency will affect them financially. Until Biden begins enacting changes, we won’t know. But based on his official campaign platform, past interviews, and projections, we can better prepare ourselves for the potential changes to come.
What potential challenges could high earners face during the Biden administration?
Challenge #1: Expect Higher Taxes
Much of Biden’s tax plan focuses on raising taxes for high earners, corporations, and capital gains. It’s estimated that approximately 80 percent of tax increases would affect the top one percent of income earners.
Biden is projected to raise taxes for those earning over $400,000 annually, including individual income, capital gains, and payroll taxes. Households with an adjusted gross income of $400,000 a year or less will likely see less dramatic tax changes if any changes at all.
Challenge #2: Corporate Taxes May Increase
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.
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 exchanges have taken place in the real estate industry for years. They have been a part of the IRS code since 1921. 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.
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.
Biden is pushing to end US fossil fuel subsidies worth billions of dollars a year to combat climate change and reach net-zero emissions within 30 years.
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. 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. Any eligible assets gifted above that amount would likely be taxed at a rate of 40 percent - unless the Biden administration changes it otherwise.
We could begin seeing changes soon. If you’re unsure whether your financial situation could be affected, let us know. We are happy to discuss any, or all, of this with you.
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