January 2021: What to Expect When Biden is Inaugurated

With Joe Biden declared as the president-elect, we now have a clearer picture of the tax opportunities to expect after his January 20th, 2021 inauguration. There are four distinct time frames to look out for, namely:

  1. November 3rd to December 31st, 2020
  2. January 1st, 2021 to COVID-19 bill
  3. January 1st, 2021 to 2021 tax overhaul bill
  4. 2021 tax overhaul bill to December 31st, 2021

 

Because the COVID-19 bills and tax overhaul dates may still change, tax planning will be different for each period. Nonetheless, this is an exciting time for tax and accounting firms as they prepare for Biden’s tax plans for 2021 and onwards. Here are a few of those plans:

Tax Plans for Businesses Under Biden

Bonus depreciation:​ While maintaining the existing tax law, a 100% bonus depreciation will be allowed through 2022 and all the way until 2026, taking into consideration that no extenders are passed during that time period.

The “Made in America” 10% tax credit:​ One of the biggest changes under Biden’s corporate tax code. It will increase the manufacturing payroll for American workers while expanding current facilities and enhancing production capacities. Closed factories and those in the process of closing will be able to reopen and bring jobs back to U.S. workers.

Tax Plans for Individuals Under Biden

Biden plans to change some tax laws when he becomes president. Here are a few of those proposals:

Individuals earning less than $400,000:​ Biden’s tax plans for individuals with wages below $400,000 has created the most buzz. Biden plans to not raise taxes for those earning less than $400,000 a year. Social security tax for those that grow to more than $400,000. Those earning more than $400,000 from self-employed and small business owners can no longer avail of the 20% QBI. And limitless itemized deduction may be phased out for income earners of more than $400,000.

Child and Dependent Care Credit:​ The new president plans to expand the Child and Dependent Care Credit per dependent to $8,000 or a maximum of $16,000. Families earning over $125,000 (but below $400,000) will receive partial credits, and full credit will be available for those earning less than $125,000.

TCJA tax rate:​ Biden has plans to reverse the tax rate changes for individual taxpayers imposed by the TCJA, raising the top marginal tax rate back to 39.6%.

Capital gains tax: ​The new president has expressed plans to maintain the preferential rate for taxpayers with under $1 million of taxable income from their capital gains. High earners will then be taxed for capital gains at the ordinary income rate, which would be 39.6% under his tax plan.

Estate tax rate:​ Biden plans to raise the estate tax rate to 45% and reduce the exemption by $3.5 million.

New tax credits:​ Biden also wants to create new tax credits that include:

  • Informal Caregiver tax credit,​ which will provide those who are not eligible for the Child and Dependent Care Credit a tax credit of $5,000.
  • Renter’s tax credit​ which limits renters to paying only 30% of their rent and utilities based on their total income
  • Homebuyers tax credit,​ which he wants to make a permanent part of the tax code, will give first-time homebuyers $15,000 credit. The temporary one that was enacted by Congress after the 2008 recession is only $8,000.

 

Tax planning is needed for these important time frames and potential shifts. You can confidently start your planning with our built-in proactive tax planning software. Connect with ​Golden Tax Relief​, and we can compare Biden’s tax proposals with those that exist.

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