The following is a summary describing the current tax plans of President Donald Trump and Presidential Candidate Joe Biden. Please note, this is not a political piece and does not contain all provisions of their respective plans. It is strictly an informational summary for your planning and consideration.
It will be an interesting next sixty days, and we are sure that the proposals and positions of both parties will be modified. We will work to continue keeping you informed in between it all, always striving to make the complex simple.
Please note that due to the candidates changing positions, this information may change. This information is accurate as of the time of publication.
Election 2020: A Brief Comparison of Trump and Biden’s Tax Policies
Income Tax Rates
Under the TCJA, there are seven tax brackets which are applicable through 2025 — 10, 12, 22, 24, 32, 35, and 37 percent. While Trump proposes no changes to this law, Biden has suggested increasing the top rate back to 39.6 percent, which is where it was before the TCJA.
This would apply to taxpayers with more than $400,000 of taxable income. Currently, the top tax brackets apply to incomes over $518,400 for single filers and $622,050 for married couples filing jointly.
Capital Gains / Dividends
Currently, a capital gains rate of 0, 15, or 20 percent applies to capital gains and qualified dividends received by taxpayers, depending upon the amount of their taxable income. Trump has no proposed changes to this law. However, Biden’s proposal would increase the top marginal income tax rate on long-term capital gains to 39.6 percent for individuals earning more than $1 million annually. Keep in mind, this does not include the additional net investment income tax of 3.8 percent. Combined, tax on long-term capital gains and qualified dividends could rise to 43.4 percent.
Biden’s proposal would also eliminate the step-up basis for inherited assets with capital gains, instead taxing those gains at death.
Corporate Tax Rates
Under the current law, the corporate tax rate is 21 percent. Trump has no plans to change this. Biden, however, proposes to increase the corporate tax rate to 28 percent.
Qualified Business Income Deduction
Under the TCJA, this deduction is scheduled to expire after 2025, and President Trump is in favor of extending the provision beyond 2025. Biden proposes to phase out the qualified business income deduction for incomes over $400,000, effectively increasing the tax rate on some pass-through income from 29.6 percent to 39.6 percent.
A Few Other Major Proposed Changes and Incentives from Joe Biden
On top of the few compared above, below are some significant tax changes proposed by Presidential Candidate Joe Biden.
- A minimum tax of 15 percent of book (GAAP) income will be put on companies with $100 million or more in annual net income.
- The tax rate on global intangible low-taxed income (GILTI) will be doubled from 10.5 percent to 21 percent, along with adding a new 15 percent alternative minimum tax on global book income.
- Eliminate Section 1031, tax-deferred exchanges, for real estate for taxpayers making more than $400,000.
- Impose the 12.4 percent Social Security payroll tax on income earned above $400,000.
- The benefit of itemized deductions would be limited to 28 percent, irrespective of tax bracket.
Biden’s plan also addresses climate change and promotes U.S. infrastructure investments with several tax incentives.
- Residential energy efficiency tax credits will be reinstated.
- Tax deductions for energy technology upgrades and other emissions-reducing investments in commercial buildings will be expanded.
- The solar investment tax credits will be reinstated.
- Low-income housing and new market tax credits will be expanded.
We Are Here to Make the Complex Tax Plans Simple
While this is just a brief overview, we hope that it paints a clearer picture of the changes that we may see after the 2020 election. We will continue to monitor any adjustments to both party’s plans, and we will provide you with updates as they become available.
As always, we are here to make the complex simple, especially now in this unique, complex year.