If Biden wins the election, what’s next for your taxes

Democratic presidential candidate and former US Vice President Joe Biden introduces his vice-presidential running mate, US Senator Kamala Harris, during their first press conference together on August 12, 2020 in Willington, Delaware.

Olivier Doulieri | AFP | Getty Images

Although former Vice President Joe Biden has proposed raising taxes on the wealthiest homes, accountants are asking their clients to stand for now.

As Biden prepares to accept his party’s nomination for the presidency this week at the Democratic National Convention, high-income people are beginning to wonder if it’s time to revisit their tax plans.

“Many people think Democrats will take over the White House and Senate, and as a result, there will be changes sooner rather than later,” said Jim Bertels, managing director of Tidemann Advisors in Palm Beach, Florida.

In fact, taxpayers with more than $ 400,000 of taxable income may see their personal income taxes ticking under the Biden Presidency. The former Vice President has also called for raising taxes on money transfers.

To make those changes, Democrats would need to maintain their majority in the House.

“As a result, people are coming to us, lawyers and accountants and saying, ‘Let’s engage in some transfer tax planning and take advantage of today’s rates while they exist,” Bertels said.

In comparison, President Donald Trump signed into law the Tax Deductions and Jobs Act in late 2017, which lowered personal income tax rates across the board, nearly doubling the standard deduction and eliminating personal exemptions. He doubled the property and gift tax exemption to over $ 11 million from 2018 through 2025.

Changes under a Biden administration may seem earth-shattering among the wealthiest households, yet accountants are suggesting watching them and waiting.

“Making decisions and now raising assets based on an election that can be a sure way based on tax policy, which can be far less risky,” Jeffrey Levine, CPA and advanced at Buckingham Wealth Partners in Long Island The Director of Planning said. , New York.

He said, “There is not much need to act today, but I will think about it.”

The Biden campaign did not immediately return emails seeking comment.

Income tax

Accountants are primarily focused on two slices of Biden’s proposals: income tax and estate planning.

On behalf of Income Tax, Biden called for raising the top personal income tax rate from 37% to 39.6% and applying it to taxpayers with more than $ 400,000 of taxable income, according to an analysis by the Tax Policy Center.

He is also talking about an increase in payroll taxes. The Tax Policy Center found that Biden would apply a 12.4% share of the Social Security tax – which is typically shared by both the employee and employer – to income in excess of $ 400,000.

Currently, the Social Security tax is subject to a wage cap of $ 137,700 and is adjusted annually.

Finally, Biden also stated that long-term capital gains and qualified dividends for 39.6% – the same top rate as ordinary income – for people with incomes over $ 1 million, according to the Tat Foundation.

Currently, the long-term capital gains tax rate for single families over $ 441,451 for taxable income in 2020 ($ 496,601 married-filing-jointly) is 20%.

Now deciding and transferring assets based on an election, which may be a sure way, what can be created based on tax policy is a bit risky.

Jeffrey levin

CPA and Director of Advanced Planning at Buckingham Wealth Partners

The tax rate applies when you sell an investment investment for at least one year.

Selling appreciated investments, as well as converting traditional personal retirement accounts into a Roth, and paying income tax at a lower rate may now seem like a good idea if you think taxes are going to increase later.

Avoid knee-jerk reactions. The decision depends on how the election turns out and what laws may be followed, as well as your own financial situation.

“Make sure it affects you personally,” said Tim Stephan, CPA and Senior Advisor at the Advisory Education Group at Kimco.

“If you’re going to retire next year and your income is declining, then those high taxes may not have any effect on you – or if higher tax rates go up, then it’s only those people Affects those in parentheses to begin with. “

Property tax increase

Last month, the Democratic presidential contender collaborated with Sen. Bernie Sanders, I-VT, and the two formed a six-task force to issue a 110-page policy document. The document gives some information that we can expect from the Biden administration.

In the policy plan, the task force wrote, “Estate tax should also rise above the historical norm.”

In fact, the Tax Cuts and Jobs Act almost doubled the amount you can transfer to other people – either as death or as a gift during life – facing 40% of property and gift tax. without.

The gift and estate tax exemption is $ 11.58 million per person in 2020.

Biden sets his sights on the basis of a “step-up base”, a provision in the tax code that allows a person to hold on to property for years, appreciate it and then give it to the heirs on death. Looks at

The owner’s basis – the original investment in the asset – moves up to market value upon death, meaning the heir is not subject to any capital gains tax if he sells it.

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Biden proposes to tax unorganized capital gains in property at the time of death, which is essentially a step-off.

Advisers at Biedles of Tiedemann said that wealthy households are likely to use gifting strategies to lead this change. “It can be as simple as giving a trust or lump sum property to children or grandchildren using the exemption,” he said.

When you don’t want to give away your assets ahead of time, it doesn’t hurt to start talking to your financial advisor about what you can do next.

This can include getting a valuation for hard-to-value assets that Levine wants you to pass on to the next generation, Levine said.

“If I was considering a transfer later this year, I’d start doing those evaluations, so you’re not pressed for time because the end of the year closes,” he said. “But other than that, don’t take away the property anymore.”


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