Income Tax Changes
Biden prefers that increasing taxes on America’s richest workers. He’d do this by re-raising the top marginal income-tax bracket from 37% to 39.6%. If you recall, the TCJA lowered the top marginal bracket from 39.6% to 37% in 2018. For the 2020 tax year, this top marginal rate is applicable to earned income above $518,400 for single lers and over $622,050 for married couples ling jointly.
Biden is also in favor of increasing the capital gains tax on filers with incomes above $1 million. Presently, short-term capital gains are taxed at the ordinary income tax rate, whereas long-term gains are taxed at 0%, 15%, or 20%, depending on a ler’s income. The 20% rate is applicable to single and married couples ling jointly with earned income above $441,450 and $496,600,respectively, in the 2020 tax year. Biden’s proposal calls for filers with over $1 million in income to pay ordinary tax rates on all their gains, regardless of holding period, at a rate of 39.6%. So if you have appreciated stocks that you are likely to be selling in the next several years, sell them now. If you do, postpone capital losses until January so you can use them against gains occurring in higher-tax years.
Increase in the Corporate Tax Rate
The present corporate tax rate is 21%. Under the Biden tax plan, the corporate tax rate would be increased to 28%, which is still well below where it was during the Obama presidency.
Estate Tax Changes
2020 may be the last year to benefit from current estate tax exemptions. Biden’s tax platform appears to favor an increase in the so-called “wealth tax”, which can be achieved by a reduction in the estate tax exemption, as a smaller exemption leads to more estate tax.
The estate tax exemption’s current level is $11.58 million per individual. This means that an individual can give away USD $11.58 million ($23.16 million for married couples) to others during their lifetime or at death without being subject to gift or estate taxes. Without congressional action, these amounts are set to continue to increase with inflation through 2025, after which they will decrease back to about $5 million per individual. With congressional action, it’s likely that this “sunset” will come sooner, and that the exemption could be set even lower, under a Democratic administration or Congress.
While Biden has not committed to supporting all recommendations, the Biden-Sanders Unity Task Force has recommended returning the estate tax regime to the “historical norm.” This could mean restoring the exemption threshold to the 2009 level of $3.5 and it could also return to an estate tax rate increase back to the 45% rate in effect in 2009.
Estate Tax Planning Opportunities for Business Owners
This is a good time for clients with $11 million or more as individuals or over $23 million as a couple to consider gifting today by using their high exemption. If you do not use the current increased exemption you may lose it. Proactive gifting today using the current higher exemption by transferring the incremental amount out of your estate is a great way to transfer millions of dollars on an estate tax advantaged basis.
We recommend against procrastinating until the makeup of the Congress and White House is determined in November. There is no actual deadline to get started, but any gifts you want to make this year will need to be completed by December 31st. Gift planning is best done very carefully, and it can take time to organize things properly with an experienced tax attorney.
See also our post Covid 19 Gives Rise to Estate & Family Planning Opportunities for estate planning opportunities caused by Covid 19.
Biden Pledges A 'Made In America' Tax Policy
ReplyDeleteDemocratic presidential nominee Joe Biden announced Wednesday a plan for both tax breaks and penalties to encourage U.S. companies to move or keep manufacturing jobs in America, echoing similar protectionist appeals from President Donald Trump.
"I'm not looking to punish businesses," Joe Biden said. "But there's a better way. Make it in Michigan, make it in America, make it in places like Warren."
Speaking in Warren, Michigan, behind a fleet of American-made pickup trucks, Biden blasted the Tax Cuts and Jobs Act , claiming it rewarded companies that lower their tax payments by moving facilities abroad. Biden said that aside from changes to the 2017 law, he would raise by 10% the tax payments of companies that make products abroad to sell in the U.S., and would also enact a 10% credit for domestic investments.
"If your big corporate strategy is to boost your shareholders' profits and your CEO's bonuses by moving jobs out of America, well, we're going to make sure you not only pay full U.S. taxes on those profits, and then we're going to add an extra 10% offshoring penalty surtax to your bill," Biden said. "I'm not looking to punish businesses. But there's a better way. Make it in Michigan, make it in America, make it in places like Warren."
The details of how these latest taxes would interact with prior Biden campaign proposals remain unclear, and the Biden campaign did not return a request for further details.
ReplyDeleteThe former vice president already called for changes to the tax on global intangible low-taxed income, which is currently a 10.5% levy on some of the foreign profits of U.S. companies. Biden would raise the rate to 21%, while also removing an exemption for tangible depreciable property, ensuring that it would apply to virtually all foreign income of U.S. corporate taxpayers.
On top of this, Biden's campaign would add a surcharge increasing the company's tax liability on foreign income by 10% if that company uses foreign manufacturing facilities to sell products into the U.S. The charge would also apply to companies that remotely supply services to the U.S., including the use of call centers.
But based on the campaign's announcement, it is unclear what the final effective tax rate on this would be, or whether it would be higher than the 28% overall domestic corporate tax rate the campaign has proposed.
Biden also said he would enact a 10% advanceable tax credit for a variety of domestic investments, including "revitalizing" or "retooling" U.S. facilities, and "reshoring" foreign production into the U.S. The credit would also apply to expansion of U.S. facilities or an increase in a company's wages.
"We will make sure our companies and jobs stay in our country, as I've already been doing for quite some time, if you have noticed," Trump said in the Aug. 28 speech. "Joe Biden's agenda is made in China. My agenda is made in the U.S.A."
ReplyDeleteApplying to a company's overseas tax liability, the 10% surcharge would not raise a company's overall tax rate by more than 3 percentage points — which Lovely claimed would be too small to have much of an effect.
"For U.S.-based firms, part of their calculus here is going to be similar to what their calculus would be under tariffs," he said. "They'll have to think about how much they'll sell into the United States."
But, he added, the increased tax cost of selling into the U.S. wouldn't make a U.S. factory any more profitable.
"What does affect domestic investment is domestic taxation," he said.
In the Wednesday speech, Biden also reiterated a plan to recalibrate foreign tax credits to ensure that companies have a U.S. tax payment under GILTI for income earned in any country with a tax rate lower than 21%. The current law applies GILTI on the global level, based on the company's overall effective foreign tax rate.
The campaign also said it would enact stronger rules against inversions, or when a U.S. company converts itself into a foreign-parented one, normally by merging with a smaller offshore entity.
But despite these safeguards, the Biden plan's increased focus on the foreign income of U.S. companies could still increase pressure for those companies to drop their U.S. tax residency. One potential route could be through a foreign takeover of a U.S. company.
Biden also pledged to nix tax deductions for costs associated with moving facilities overseas, and to sign executive orders bolstering requirements for federal departments to buy American products.
He would also create a "'Made in America' Office" within the Office of Management and Budget, to ensure that requirements to buy American-made products are followed and that companies do not deceptively repackage foreign goods as domestic.