What to Expect: A Comparison of the Trump and Biden Tax Plans

With the 2020 Presidential Election right around the corner, we wanted to provide some insight into the potential tax changes on the horizon depending on how things fall this November. Below is a summary of various tax policies that currently exist under the Trump administration and those proposed by the Biden administration.

Corporate Income Taxes:

• Corporate Income Tax Rate:
  • CURRENTLY: Corporate tax rate is 21%.
  • BIDEN PROPOSED: Corporate tax rate would increase to 28% with 15% minimum book-tax* on companies reporting more than $100 million in the US but paid zero or negative federal income taxes. Credit for foreign taxes paid and carryovers allowed.

International Business Taxes:

• Global Intangible Low Tax Income (GILTI)
  • CURRENTLY: GILTI was a new provision introduced under the TCJA that functions as a global minimum tax and applies broadly to income earned by foreign affiliates of US companies from intangible assets. The current GILTI rate is 10.5%.
  • BIDEN PROPOSED: Raise minimum GILTI rate to 21%.

Qualified Business Income Deduction (Section 199A Deduction):

• CURRENTLY: Generally, allows a 20% deduction on qualified business income, subject to W-2, and unadjusted basis of qualified property limitations when 2020 taxable income exceeds $326,600 for joint returns and $163,300 for all other filers. There is no deduction allowed for taxpayers conducting a specified service trade or business with income above $426,600 for joint returns and $213,300 for all other filers.
• BIDEN PROPOSED: Only allow deduction to taxpayers making $400,000 and under. End special qualifying rules, including those for real estate investors.

Individual Income and Payroll Taxes:

• Income Taxes:
  • CURRENTLY: top tax rate for individuals is 37% for income over:
    • $518,401 (Single & Head of Household filers); $622,051 (Married-Joint filers); $311,026 (Married-Separate filers).
  • TRUMP PROPOSED: Considering 10% middle-class tax cut; extend 2017 TCJA provisions past 2025, including Section 199A pass-through deduction.
  • BIDEN PROPOSED: Increase top tax rate for individuals to 39.6%; taxpayers making more than $400,00 would see taxes increase.
• Capital Gains & Qualified Dividend Rates:
  • CURRENTLY: long-term capital gains and qualified dividends are taxed as follows:
    • Single filers: 0% on $0-$40,000 of income, 15% on $40,001-$441,450 of income, and 20% on $441,451 of income or more.
    • Married-Joint filers: 0% on $0-$80,000 of income, 15% on $80,001-$496,600 of income, and 20% on $496,601 of income or more.
  • TRUMP PROPOSED: Seeking to cut capital gains rate by executive action; would cut the maximum capital gains rate to 15%.
  • BIDEN PROPOSED: Tax at top ordinary income tax rate (39.6%) for taxpayers with over $1 million income.
• Itemized Deductions:
  • CURRENTLY: No cap on the amount of itemized deductions.
  • BIDEN PROPOSED: Cap the value of itemized deductions to 28% for those in higher marginal tax brackets and restore the Pease limitation** on itemized deductions for those with table income above $400,000; End the $10,000 State and local income tax cap.
• Child and Dependent Care Tax Credit:
  • CURRENTLY: Taxpayers may claim a credit of up to $2,000 for each qualifying child, with up to $1,400 of the credit refundable. The maximum credit amount is reduced by 5 percent once adjusted gross income (AGI) reaches $200,000 for single filers and $400,000 for married filing jointly.
  • BIDEN PROPOSED: Expand dependent care credit to $8,000. Families will get back as a tax credit as much as half of their spending on childcare for children under age 13, up to a total of $8,000 for one child or $16,000 for two or more children. The tax credit will be refundable, and ways will be explored to make it advanced.
• Payroll Taxes:
  • CURRENTLY: Executive Order for optional deferment of employee social security taxes from September 1 through December 31st for workers earning up to $104,000 a year.
  • BIDEN PROPOSED: Lift social security taxable wage base cap on high earners. This would create a “gap” in the current Social Security payroll tax, in which wages between $137,700, the current wage cap, and $400,000 are not taxed.

Estate Taxes:

• Estate Tax Rate Exemption:
  • CURRENTLY under Trump: estate tax income exemption is $11.4 million per person ($22.8 million per couples).
  • BIDEN PROPOSED: Eliminate the step-up in basis for inherited capital assets and lower the federal estate tax exemption from 11.58 million (for 2020) back to pre-tax reform levels (around $5 million).

As you can see, there is the possibility for a significantly different looking tax-landscape on the horizon. Depending on how the Presidential and Congressional elections go this Fall, it could force time-sensitive, tax-planning decisions to be made before the end of the year. Please do not hesitate to reach out to The Bonadio CARES & More Consulting Team for additional support.

*Book income is the amount of income corporations report on their financial statements to shareholders.

**Pease Limitation effectively reduces the amount one can deduct above a certain threshold. For every dollar of income earned above the threshold, the Pease Limitation reduces the value of itemized deductions by three cents

This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute an accountant-client relationship.