How will Biden's new tax plan affect you?
We break down the Biden tax plan to better understand how it compares to former President Trump's tax plan, the potential impact of these proposed changes and what it means for you.
Here in the U.S., we have a tax code that is thousands of pages long and can be very overwhelming. Right now, with Biden’s new pending tax plan, there is a lot of uncertainty regarding corporate tax rates, capital gains tax, gift, income and estate tax. How will this affect different income brackets of the population?
Biden has been making strides on repealing many of the tax reductions passed by former President Donald Trump in 2017. Biden’s tax plan seeks to restore higher tax rates, including top individual federal income tax, which he wants to restore to the pre-Trump rate of 39.6% from 37%, and corporate rates to 28% from 21%. Individual taxpayers who have incomes less than $400,000 would not see any increase to their rates.
On our latest episode of The GoGedders Podcast, we were joined by Joe Maier. Joe works over at Johnson Financial Group as their Senior VP and Director of Wealth Strategy. In addition to his positions at Johnson Financial, he is also an adjunct professor at the University of Wisconsin-Madison Law School and is a former Succession Planning Attorney at Foley and Lardner. He helped us break down the Biden tax plan to better understand how it compares to former President Trump’s tax plan, the potential impact of these proposed changes and what it means for you.
One of the issues that we discussed with Joe touched on how small businesses and farms could be negatively impacted by these tax changes.
“If you look at the Biden tax proposal … one of his recommendations is to raise the capital gain rate for capital gains in a year over one million dollars," he said. "It is true that a million dollar capital gain is a relatively rare statistical event, except when you are talking about family businesses … because what happens is in that one magical year when they decide to sell their business … what happens is the sale of most businesses is going to generate more than a million dollars capital gains.”
This is a problem for many Wisconsinites, where a lot of residents rely on small family businesses and farms. The Biden proposal wants to increase the capital gains tax from 20% to 40%, which may be a fair increase for the Jeff Bezos of the world, but the increases would make it extremely difficult for small businesses to sell and reinvest into their companies or other ventures.
Another big change that Biden is hoping to pass affects gift tax and estate tax. Biden’s proposal would return the lifetime exemption to approximately $5.5 million, or possibly reduce it even further to $3.5 million per person, for the estate tax and $1 million per person for the gift tax. Also, the tax rate could be increased from 40% to 45%.
If you are looking to get more information about these upcoming changes that could be coming to our tax code, please do give the podcast a listen. Joe does a wonderful job of breaking everything down; I really learned a lot during our discussion and think you will, too.