With the election results pending this week, you may be wondering how the results will effect your future taxes. You need to know what may be coming and therefore how to plan for it. We know that no matter what happens with the election, our taxes will be going up in the future in some capacity; the government debt is an astronomical 26 trillion dollars and each candidate has a unique plan for how they will begin to pay this down.
So first, let’s jump into what will happen if Trump remains in office. Trump has said he’d want to extend the provisions of the Tax Cuts and Jobs Act since some are set to expire. There have even been hints at a possible capital gains tax holiday that would reduce the rate to 0% for a short period of time. This is more likely if the Republicans take the House of Representatives and very unlikely if the Democrats do. Aside from that, a Trump presidency will likely be more of the lower tax rates we’ve seen since 2017.
If Joe Biden gets elected, his plan would change quite a few things. Biden’s plan would raise taxes by $4 trillion over the next decade most of which will be paid by high earners and companies. Biden would hike tax revenue s by 8% in total which means EVERY income group would see a tax increase. The highest earners (1%) would see an average increase of $300,000 PER YEAR and their tax rate would jump by 12% points up to 42%. This means that nearly three-quarters of the total tax revenue would come from the top earners in the country.
Biden would also tax capital gains at the level of ordinary income for those making over a million dollars a year. This would be a historical leap from 23% to 39.6% – which is the largest real increase in capital gains tax in history. Next, anyone earning over $400,000 a year would be subject to the payroll tax of both 6.3% for employees and 6.3% for employers.
What about gift and estate taxes? Over the past 3 years, we’ve had the highest estate tax threshold we’ve ever seen. Biden’s plan would dramatically lower this threshold which would therefore apply the federal tax to many more families. And so you know, assets exceeding this threshold are subject to a 40 percent tax rate. Biden would also do away with step-up in basis, which means unrealized capital gains would be taxed at death, affecting how you transfer highly appreciated assets (like stocks or real estate) to the next generation.
Lastly, in 2013 the gift tax exemption was set to drop to 1 million dollars. However, legislation was passed that prevented it from happening. We don’t yet know whether we would see a gift tax limitation similar to this in a Biden administration, but I wouldn’t be surprised considering other democrat leaders are in favor of such a move.
Now, with all this information about what may come to pass once the election happens, ask yourself whether it’s wise to sit on this information and twiddle your thumbs, or if you should act now and get yourself a financial check-up. If you think you would benefit from a conversation, or better yet, written diagnostic reports and recommendations of what to do to keep your money safe and in your own pocket, call RGA as soon as possible. The sooner you get scheduled for this, the better you’ll feel.