Potential Tax Law Changes Under a Biden Administration

Written by Firethorn Wealth Partners

January 30, 2021

As promised in last week’s newsletter, we wanted to follow up with some expectations on the potential tax plan from the Biden administration. Some, all, or none of this may come to pass. Additionally, the needle will most certainly move as far as the numbers below.

  • An increase in the top two federal brackets (individuals with income over $400,000) with the top bracket returning to the 39.6% level
  • Individuals with income over $400,000 may see the elimination of the Qualified Business Income tax
  • deduction for pass through entities (i.e. LLCs, partnerships, S Corps and sole proprietorships)
  • Elimination of the 1031 tax free exchange for real estate for taxpayers with income over $400,000
  • Increase in long term capital gains rate and qualified dividend rate to your marginal ordinary income tax rate for income in excess of $1 million
  • The value of itemized deductions would be capped at a 28% rate impacting those taxpayers at marginal brackets above 28% (or those earning over $163,301 for individual or $326,601 for joint filersA 26%
  • A 26% flat retirement contribution credit vs. the current rule that deducts retirement contributions from income (negative impact for those in marginal brackets above 26%)
  • Elimination of the step-up in basis at death for inherited assets
  • Reduction in the estate tax credit from $11.7 million to $5.79 million