How To Prepare For Biden's Tax Proposals
Foregoing a proper plan could cost you thousands.
President Biden’s long-proposed plans to increase the top income rate, capital gains and corporate tax means that a well-thought-out strategy is more important than ever as we head into the end of the year. While not all of these proposals will be enacted, the best way to reduce their impact to potentially increase your financial burden is to update your tax plan.
Increase in individual income taxes
Considering how long Biden has vowed to increase the top individual income tax rate? It’s safe to assume that this will be passed at some point, likely through budget reconciliation. If passed as proposed, this would boost the current rate from 37% to 39.6%.
Corporate taxes will increase
Biden has his sights set on increasing the domestic corporate tax rate from 21% to 28% and while we can all agree that corporations need to pay their fair share, a significant increase in corporate taxes could push U.S.-based companies into other countries. It’s important that America keeps its rate competitive to ensure businesses, and the jobs they provide, stay put. Nevertheless, some increase in corporate taxes, say to 25%, is likely.
Capital gains tax is also a target
This tax on the profit realized via the sale of a non-inventory asset is also likely to increase under Biden. In his proposals, the President hopes to nearly double the rate, increasing it from 20% to 39.6%. While we may not see the rate reach nearly 40%, it is more likely that there will be an increase of some amount, especially given that we already have a 28% capital gains rate for gold and collectibles.
Qualified business income deduction could phase-out
Thanks to the Tax Cuts and Jobs Act, individuals with pass-through entities could take advantage of the QBID to deduct up to 20% of their qualified business income. The President has proposed that this deduction be phased out for those making over $400,000, in turn increasing the rate for those taxpayers. The good news surrounding the QBID is that this proposal has been a lower priority for Biden, so there’s a chance it may not be impacted by future legislation. The one proposal that might have legs is to allow all businesses with income under $500,000 to receive the QBID while eliminating it for all businesses in excess of this amount of net income.
If you wait until the last minute, you run the risk of not being able to find qualified professionals who have the capacity to take on your tax strategy.
Without proper planning, the changes Biden is proposing could cost you a mint. Meet with your team now to create an offensive approach that will legally reduce your taxes in the long run.
Related: 2 Ways to Mess with the IRS
Entrepreneur Leadership Network Contributor
Tom Wheelwright is a leading tax and wealth expert, CPA, and author of "Tax-Free Wealth." As CEO of WealthAbility®, Wheelwright helps entrepreneurs and investors build wealth through practical strategies that permanently reduce taxes.