President Biden's Tax Plans and Their Impact on Individuals

The primary goals of President Biden's American Families tax plan include the following:

Strengthening taxation of high-income taxpayers
Supporting workers, families and economic security
Closing loopholes as well as improving compliance and tax administration

Any enacted changes to the tax code will likely take effect after December 31, 2021, although some items could be backdated to the plan’s announcement date (April 2021).

For high-income taxpayers, the primary change is an increase in the top tax rate from 37% to 39.6%. For those with more than $1 million in income, this plan also eliminates preferential rates for capital gains. This change in capital gains rates is the most likely to be backdated to April 2021.
Other changes include:

Subjecting business income from high-income taxpayers not subject to FICA taxes to the net investment income tax
Making permanent the $500,000 limit on using active business losses to offset portfolio and wage income

For taxpayers invested in elder-owned businesses (including corporations, partnerships and LLCs), the plan proposes limiting the step-up in basis rules for appreciated property acquired by gifts or death. These would instead be immediately taxable with certain caveats, including:

A $1 million exclusion for certain transfers
Special rules for certain family-owned and -operated businesses

As part of the plan’s goal to support workers and families, the American Families plan calls for making permanent many of the changes from the American Rescue Plan Act, including:

The increased dependent care tax credit
The increased child tax credit, along with its ability to be fully refunded

To improve compliance and tax administration, the plan includes various provisions to:

Increase funding for the IRS to address tax evasion
Require additional third-party reporting of tax information, such as:
- More detailed information on bank, loan and investment accounts
- More information on cryptocurrency holdings

Additional Reading

President Biden's Tax Plans and Their Impact on Businesses

President Biden's American Jobs tax plan revolves around several core concepts, including:

Creating a fairer tax system that rewards labor
Reducing profit shifting to—and eliminating incentives for—offshore investments
Requiring all corporations to pay their fair share

Any enacted changes to the tax code will likely take effect after December 31, 2021, although some items could be backdated to the plan’s announcement date (April 2021).

For corporations, the primary change is an increase in the tax rate from 21% to 28%. In addition, a minimum tax rate of 15% is proposed on corporations with income exceeding $2 billion. It is currently projected that only 3% of small businesses will be affected by these increases.

For all companies, the plan aims to reduce foreign income breaks and tax credits for situations where income is exempt or taxed at preferential rates. Similarly, the plan calls for the deduction for foreign-derived intangible income to be repealed.

To promote scientific and technological development, the plan calls for:

Expanding R&D tax credits
Helping with environmental protections by:
- Eliminating tax preferences for fossil fuels
- Reinstating Superfund taxes for hazardous waste materials

President Biden's American Families plan also includes a few items of note to businesses. For elder-owned companies, or those looking to set up generational inheritance of ownership, the plan proposes limiting the step-up in basis rules for appreciated property acquired by gifts or death. These would instead be treated as immediately taxable with certain caveats, including:

A $1 million exclusion for certain transfers
Special rules for certain family-owned and -operated businesses

For businesses with more than $1 million in income, this plan also eliminates preferential rates for capital gains, which could result in larger tax implications from the sale of business interests.

For those involved in the buying and selling of real estate, the proposal eliminates like-kind exchange rules for real estate gains greater than $500,000. These rules previously allowed the deferral of gains or losses until the newly acquired property was sold.

If any of the above sound like they could impact your business or future plans, we can walk you through your best options to help mitigate their impact.

Additional Reading

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2021 Q2

President Biden's Tax Plans and Their Impact on Individuals

President Biden's Tax Plans and Their Impact on Businesses

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