Biden Administration Tax Changes Could Impact Your Short- And Long-Term Strategies
When a new President takes office, there are always changes business owners need to pay attention to – especially when the new President is from a different political party than their predecessor. When President Biden took office in January, the change in power came with a whole slew of policy changes – many of which are tax changes.
Some of these changes have already been enacted, while others have been mentioned and could be on the horizon. This article will provide a brief overview of what tax changes we already know about and what tax changes could be coming to individuals and business owners soon.
Tax Changes We Know Of
Employee Retention Tax Credit – This is a refundable and/or non-refundable tax credit against certain employment taxes equal to 50% of qualified wages. In order for employers to take advantage of this credit in 2021, they must have either suspended business operations (fully or partially) due to a COVID-19 shutdown order or have a 20% or greater decline in gross receipts compared to the same quarter of 2019 or the immediately preceding quarter. Eligibility requirements differ between 2020 and 2021, and there are other items that must be considered when evaluating the applicability of this credit.
- The credit is worth:
- Up to $5,000 per employee per year in 2020 (50% of wages up to $10,000)
- Up to $7,000 per employee per quarter in 2021 (70% of wages up to $10,000)
Solar Tax Credit – For individuals and business owners who are considering taking advantage of the federal solar tax credit, be prepared for those tax credits to decrease, beginning with the 2020 tax year. The phase-down schedule is as follows:
- 26% in 2020
- 22% in 2021
- 10% business, and 22% residential in 2022
Charitable Donations Deduction – For those of you who make charitable donations throughout the year, here are the following tax changes you can plan to experience:
- For individuals: a maximum deduction up to 100% (up from 60%) of adjusted gross income. There is also a $300 above-the-line deduction for those who do not itemize.
- For corporations: the deduction for charitable donations was increased to 25% (up from 10%) of taxable income.
Listen to episode 273, “Busy Season Just Got Busier: Tax Updates, Deadlines, & Biden’s Plan,” on unsuitable on Rea Radio, Rea & Associates’ award-winning weekly podcast for business owners.
Potential Tax Changes For Individuals
While we don’t have confirmation that the following tax changes will indeed take place, we’ve heard enough chatter in the industry to suspect that these individual tax changes are on the horizon.
- Individuals making more than $400,000 may see a tax rate increase to 39.6% (up from 37%).
- For individuals making more than $400,000, there may be a cap at 28% on itemized deductions.
- There may be increased capital gains rates and qualified dividends rates for taxpayers making more than $1 million – possibly up to 39.6%.
- There could be a phase-out of the Qualified Business Income Deduction for taxpayers with taxable income over $400,000.
- The First-Time Homebuyer Tax Credit could return, which would provide up to a $15,000 credit for qualified first-time homebuyers.
- Under President Biden’s Social Security tax proposal, individuals with Social Security income up to $142,800 in 2021 would be taxed, those who make between $142,800 and $400,000 would not have any additional Social Security tax, and those who make over $400,000 would be subject to additional Social Security tax.
Potential Changes For Estate and Inheritance Taxes
- The government could eliminate step-up basis rules that currently apply to inherited assets. Instead, heirs would receive carryover basis on inherited assets, which would lead to higher capital gains (and tax) upon sale.
- The lifetime exclusion amount for tax-free gifts could be reduced from $11.7 million per individual to $3.5 million.
- There could be an increase to the highest marginal estate tax rate to 45% (up from 40%).
For further information on how these tax changes – or potential tax changes – could impact you, your family, and your business, please reach out to your Rea business advisor. Our team is well-equipped to help you navigate these changes and more.
By Ben Froese, CPA (New Philadelphia CPA Firm)
By Joss Celuch, CPA (New Philadelphia CPA Firm)
This article was featured in the Spring 2021 edition of Plain & Simple, Rea & Associates’ quarterly print publication for small- to mid-sized businesses throughout the Plain community. If you would like to subscribe to this newsletter, click the button below.