How Wealthy Taxpayers Might Prepare for Changes in Tax Policy After the November Election: A Primer
Both President Trump and Former Vice President Biden have been clear about what the future might hold for tax policy, and taxpayers with significant wealth might be starting to prepare. We created a primer to help these individuals prepare for possible changes.
Dealing with the economic fallout from the COVID-19 crisis has likely shifted many taxpayers’ focus away from the presidential election, but now that it is less than two months away, the election is inching back into view.
Regardless of your political leanings, if you have significant wealth to manage, you might want to begin looking at how each candidate’s tax plans might affect you. And no matter who wins, it’s likely that taxes will rise to combat declining tax revenues during the pandemic. Starting to think now about how to prepare for possible changes could save you money and headaches.
If you’re looking at the platforms of the candidates and trying to determine the impact of those policies, here are the four main areas to focus your research: individual income taxes, corporate income taxes, capital gains taxes, and itemized deductions.
We’ve created a primer to help you start thinking about what’s next:
Individual Income Taxes
Biden: Unlike some other Democrats who ran for president in 2020, Former Vice President Biden has not called for a “wealth tax.” However, he has pledged to enact policies that would raise individual income taxes for those making more than $400,000 per year, and has explicitly promised not to raise taxes for those making less than $400,000 per year. Under his proposals, the top tax rate would increase from 37% to 39.6%. He would also increase payroll taxes on income earned above $400,000.
Trump: The 2017 Tax Cuts and Jobs Act, which President Trump is campaigning on this year, lowered the highest tax rate to 37% and cut taxes across the board. He has called for extending the cuts in that law beyond 2025, when it is set to expire.
How to prepare: If possible, high-earning owners of private businesses might consider looking for ways to accelerate income into 2020 and shift expenses to 2021 to avoid potentially higher income tax rates in 2021.
Corporate Income Taxes:
Biden: The corporate income tax rate is currently 21%, and Former Vice President Biden has called for increasing it to 28%.
Trump: Trump has advocated for further lowering the corporate tax rate to 20%.
How to prepare: Companies should think about how they would react to a higher corporate tax rate. Determine what the annual increase would look like and make plans now on how your company will compensate for that, whether it’s by growing revenues, boosting margins, or cutting costs.
Capital Gains Taxes:
Biden: Former Vice President Biden has proposed increasing the capital gains rate. During his time in the Senate, Biden consistently advocated for capital gains tax increases, often voting against proposals to decrease rates. Biden has also advocated for changing the long-term capital gains tax rate on investment income over $1 million, regardless of the taxpayer’s income.
Trump: President Trump said in mid-August that he would prefer the capital gains tax rate to decrease from its current level, 23.8 percent, to 15 percent. His 2017 Tax Cuts and Jobs Act did not decrease the capital gains tax rate.
How to prepare: Consider selling appreciated stocks that have been held for over one year to take advantage of the lower capital gains tax rates in 2020 as a hedge against the possibility of capital gains tax rates going up in the future.
Itemized Deductions:
Biden: Former Vice President Biden favors limiting total itemized deductions for those in higher tax brackets so that the reduction in tax liability per dollar of deduction is less than 28%.
Trump: President Trump is pushing for an extension of the higher standard deduction and other deductions codified in the Tax Cuts and Jobs Act of 2017, which are currently set to expire at the end of 2025.
How to prepare: High income individuals might consider accelerating charitable contributions into 2020 to avoid a potential phase-out on such deduction in 2021. Taxpayers should also take into consideration that the CARES Act relaxed limits on charitable contributions in 2020 in order to increase charitable contributions during the Covid-19 pandemic.
It’s important to consider all options and possibilities, but keep in mind that a presidential candidate’s platform is just a set of ideas. There are many factors that play into whether a given policy is able to be adopted, including the makeup of Congress. For either candidate to enact his tax plans, he would need to have the support, to at least some degree, of Congress. We know that everyone’s tax situation is different, and we’re ready to help advise you on how to prepare for the future, regardless of who wins in November.
