The last week has been intense from a political perspective, and we are still in limbo from a tax planning perspective. Usually when we are going into a year end, we know which party is going to be in control of the House, Senate and White House and can plan accordingly. Historically when there is a split between any of the three, we don’t see any big shifts from a tax policy perspective. The issue we have here is that we do not know who is going to control the Senate, and we will not know until after year end.
From a tax perspective, we know that President-elect Biden’s tax policy includes the following:
- Increasing the top individual rate to 39.6% for those taxpayers making more than $400,000
- Taxing capital gains at ordinary rates (39.6%) for taxpayers with over $1 million in income
- Stricter rules on opportunity zones, including more detailed reporting for funds
- Capping itemized deductions 28% and reinstating the Pease Act which would further limit itemized deductions
- Regarding employment/social security taxes, President-elect Biden would lift the social security taxable wage base cap from $137,700 to $400,000
- Increasing the corporate tax rate from 21% to 28% with a 15% minimum book tax on companies reporting more than $100 million in the U.S. but paid zero or negative federal income taxes
- Expanding the New Markets Tax Credit program
- Ending fossil fuel subsidies (e.g., deductions for drilling wells, oil and gas depletion and domestic manufacturing)
- Repealing the QBI deduction for real estate investors and limiting the deduction for all others to those taxpayers making $400,000 or less
- Establishing tax credits to renovate distressed properties in distressed communities
- From an estate tax perspective, ending the stepped-up basis rules and limiting the unified credit to $3.5 million
We understand the frustration that may result from not knowing the political landscape in 2021. Given that there is a chance that there could be unified control at the federal level, you should be aware of the potential changes. If you have any questions, please contact your LaPorte trusted advisor.