As our country passes the presidential torch, business owners and individuals alike are looking
to upcoming changes to tax laws. Keep in mind – nothing has come to pass, yet.
However, there are some potential changes you should have on your radar to stay aware of,
over the course of the current administration:
- Top individual federal income tax rate rising from 37% to 39.6%.
- The corporate tax rate going up from 21% to 28%.
- Additional payroll taxes for individuals earning more than $400 thousand per year.
- A significant increase in the maximum Dependent and Child Tax
- Tax relief offered for the forgiveness of student debt.
- Restoration of first-time homebuyers’ credit.
Continue reading for more information on potential tax changes that are on the horizon.
Will These Changes Affect My 2020 Taxes?
None of the following changes will change your 2020 tax return. The 2020 tax year has passed, and filings are already underway. The following are potential projections of how taxes could change over the course of the current administration. Keep in mind that everything outlined below would have to be passed by Congress in order to become law. Any of the following changes may be revised or eliminated in the process.
Potential Tax Changes for Businesses and Corporations Under the Biden Administration
In general, we can expect to see our tax brackets change in the near future. Our experts at Green Green Growth CPAs expect to see tax brackets revert back to a similar version of what they looked like in 2017, prior to changes made by the Trump Administration.
What does that mean for businesses and corporations?
It appears the Biden administration is working on repealing the major tax reductions that were passed during the Trump administration. As mentioned, this would increase the corporate tax rate from 21% up to 28%.
They are working toward creating a minimum tax for corporations that take in $100 million or more in revenue. An alternative minimum tax would apply to corporations in this $100 million-and-greater bracket. They will pay the greater between the standard corporate income tax rate or the 15% minimum tax rate, while also allowing for NOL (Net Operating Loss) on foreign tax credits.
Tax Predictions for Individuals and Families Under The Biden Administration
It seems that one of the president’s key priorities is introducing refundable tax credits (rather than deductions) to assist lower and middle-income individuals and families.
The current administration is making a push to increase the top individual federal income tax rate to 39.6%. This is a 2.6% increase from what was maintained by the Trump Whitehouse.
We expect that individuals with incomes equal to or greater than $400,000 per year, will have their benefit for itemized deductions capped at 28%.
Catch-Up Contributions for Retirement Accounts
The Catch-Up Contribution allows individuals 50 years and older to contribute more to their retirement accounts than those under the age of 50. The Biden administration is looking to increase the amount permitted by the Catch-Up Contribution, so individuals can further increase their rate of investing toward their retirement accounts.
Kids and Dependent Care Benefits and Credits
The Biden Administration is expected to give parents more credits for dependents and children in a couple of different ways.
The president is looking to provide up to $8,000 in tax credits for low and middle-income families. This would be for certain qualified expenses, of course. This would move the current credit max up from $3,000 to $8,000. It would also increase the credit ceiling to $16,000 for taxpayers with multiple dependents.
A large credit of $3,600 would be made allowable for children under the age of 6. This would also increase the current credit from $2,000 up to $3,000 per child, for children between the ages of 6 and 17.
Changes to Tuition and Canceling Student Debt
We aren’t yet sure on the details of how the president intends to do this, but current talks are that the administration is working toward canceling anywhere from $10,000 up to $50,000 of federal student debt, per borrower. The president has also proposed making college tuition-free for students, barring they meet certain standards. The details of this are still in the works.
For Individuals with Earnings Above $1 Million
Wealthy investors and high wage-earners above the $1 million revenue mark are projected to receive similar treatment on their taxes. These high-income earners would pay the same rate on wages as they would on their investment income. The Biden administration is also expected to eliminate the carried interest loophole, often leveraged by hedge-fund managers and private-equity firms.
COVID’s Impact on Rising Taxes
Billions were sent out by the government in an effort to relieve individuals and businesses during the COVID-19 pandemic. The government is going to have to raise taxes across the board in order to cover that nationwide debt relief.
Health Insurance Mandate Returning
Reinstating the Healthcare Coverage Mandate is something you should also expect to see in the coming years of the presidency. This is something that President Trump removed during his time in office, but this something our finance experts and CPAs project will come back.
Final Thoughts and Recommendations
Have Your Taxes Prepared by a CPA
If you have been doing your business or personal taxes on your own, it may be time to reconsider. Hiring a CPA takes the stress and risk out of doing your own taxes. It puts your information in the hands of a qualified expert (or experts) that can help you identify ways to save money while avoiding a dreaded audit from the IRS.
If you are interested in consulting with our business, finance, and tax professionals, visit our website and contact our experts at Green Growth CPAs to learn more.