We wanted to summarize some of the key elements of Joe Biden’s proposed tax plan for you. There are many changes that would be made if his plan were to fully or even partially get approved. If approved, a lot of our clients would be impacted in some way. For example, the Child Tax Credit could go from $6,000 for two or more children all the way up to $16,000. You may have also heard quite a lot of talk about the $400,000 income limit. It’s true! A lot of thresholds in the plan begin there, starting with the proposed top marginal tax rate going to 39.6% for those who make over $400,000. That and more in our summary of President-elect Biden’s tax plan:
Raising the top marginal tax rate to 39.6% from 37% now for income over $400,000/year.
Elimination of the Qualified Business Income (QBI) deduction for anyone making over $400,000/year.
Taxing capital gains and qualified dividends for incomes over $1 million at the higher 39.6% ordinary income tax rate.
Capping itemized deductions at 28% of income.
Increasing tax credits for middle- to low-income households.
Collecting additional payroll taxes for Social Security after $400,000 of income.
Lowering the federal estate tax exemption by 50% or more and eliminating the “stepped-up” basis on transfers of appreciated property at death.
Changing the tax deduction for 401(k) contributions to a tax credit (this has been discussed, but there are no formal proposals).
Slim to none. When Biden takes control of the White House, he will still need to get Congress to pass his proposals. The House of Representatives will remain under the control of the Democrats. The Senate is still up for grabs with run-off elections to take place in January. If Republicans maintain their majority, we have a divided Congress. Even if Democrats win a majority in the Senate, it’s still unlikely all of these proposals make it through since the party isn’t in unanimously in favor of everything.
Do what you planned on doing. Do not make alterations to your plan based on the idea of these proposals going through. We have no idea what, if any, will get instated.
As you can see, we are monitoring the situation. Dan and I do not plan on altering our own financial plan at this point. When and if the proposals are granted, we will then assess what we and our clients need to do.
If you’re reading this thinking you didn’t even have a plan established for 2020, let alone 2021, it’s time to get serious about your finances. Contact us today to start prioritizing your financial plan into your life plan.
Disclaimer: This article is for informational purposes only and is not a recommendation of Fyooz Financial Planning, Natalie Slagle CFP®, or Daniel Slagle CFP®. Past performance may not be indicative of future results and may have been impacted by events and economic conditions that will not prevail in the future. Therefore, it should not be assumed that future performance of any specific security, investment product or investment strategy referenced in the article, either directly or indirectly, will be profitable or equal to the corresponding indicated performance level(s). No portion of the article shall be construed as a solicitation to buy or sell any specific security or investment product or to engage in any particular investment or financial planning strategy. Any reference to a market index is included for illustrative purposes only, as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio.