Biden's administration intends to raise taxes: who will be affected by the changes
The arrival of a new presidential administration often leads to changes in the tax code, and the Biden administration will be no exception. In addition to changes in tax categories, there will be many other changes for both individuals and companies. Yahoo.
The Biden administration appears to be intent on focusing much of the tax hike on what is considered the richest Americans, earning at least $ 400 a year. However, under President Joe Biden there are several tax hikes planned, which even those earning less can expect.
Change of tax categories
One of the major tax changes of the Biden administration is the restoration of the upper tax bracket (“brackets”) to the level it was before the passage of the Tax and Jobs Cuts Act in 2018. In particular, the current tax rate will rise from 37% to 39,6%. This change will only affect those who earn $ 400 or more. All other tax categories will remain the same. On a theoretical income of $ 000, this would raise the tax on an additional $ 500 from $ 000 to $ 100.
Capital gains taxes increase
One of the advantages of the current tax legislation is the structure of the capital gains tax. This allows those who have owned capital assets for more than one year to benefit from lower tax rates on sales profits. For most taxpayers, the rate on long-term capital gains is only 15%. Those with taxable income of $ 80 or less may not pay a cent on long-term capital gains. For single people earning $ 000 or more, or joint tax filing and earning at least $ 441, capital gains rates increase to 450%.
According to Biden's new proposals, those earning at least $ 1 million will no longer benefit from long-term capital gains tax rates. These ultra-high-income people will have to pay regular income tax on their long-term capital gains.
Eliminating the difference between property prices
One aspect of Biden's tax plan that can affect low- and middle-income individuals is the Step-Up in Basis. This is an adjustment that is applied to the value of the inherited property when it passes to the heirs, which is increased to the current market value at the time of the death of the owner in accordance with applicable law. This eliminates the transfer to the heirs of any capital gains obligations. However, according to Biden's tax proposal, such an adjustment will disappear.
Imagine that you inherited a $ 500 property that cost your parents $ 000. Under current tax laws, your base value for this property will be $ 300, so you will not have to pay any taxes if you sell this property straight away. If the adjustment is canceled, you would have to pay capital gains tax on $ 000 in profit under the same scenario.
If in 2021 everything goes according to plan, and this is far from a fact, the world economy will begin to normalize. The widespread distribution of the vaccine will tame the coronavirus pandemic, businesses will reopen and unemployment will decrease. In this scenario, it is entirely possible that your income will rise as well, especially if you are not currently employed. In this case, you can look forward to a larger tax bill in 2021 than in 2020.
On the subject: Tax season 2021: when to expect a refund and how to track it
Raising social security taxes
One of the more dramatic proposals in Biden's tax plan is the introduction of a 12,4% payroll tax on social security for those earning more than $ 400 a year. Currently, the 000% Social Security tax, which is split evenly between employers and workers, only applies to income up to $ 12,4. Thus, Biden's tax structure will create a gap in social security taxes, with those earning between $ 137 and $ 700 not paying any additional taxes.
Raising corporate taxes
If your business is a corporation, you are likely to face higher taxes under the Biden administration. Biden's tax proposal raises the corporate tax rate from 21% to 28%, and also sets a minimum tax on corporations with at least $ 100 million in profits. These corporations will pay tax of at least 15% or more if their regular tax liabilities are higher.
Doubling taxes GILTI
This tax change will not affect many Americans, but for businesses to which it applies, it can be quite significant. Biden has proposed doubling the tax rate on global intangible assets, or GILTI, from 10,5% to 21%. This tax applies to foreign subsidiaries of American firms. Beyond this doubling, Biden intends to rate GILTI on a state-by-state basis.
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Biden's detailed tax plan deduction limit applies only to those who earn more than $ 400. However, these high-paid employees will see their detailed deductions capped at 000%. According to the current legislation, item-by-item deductions are estimated at the marginal tax rate of the taxpayer: now it is 28%.
Phasing out the deduction of business income
One of the main benefits of the Tax and Job Cuts Act for small business owners was the 20% deduction for business income. This allows business owners to deduct an additional 20% when calculating taxable income. While Biden's tax plan does not completely eliminate this deduction, it is phasing out it for those earning more than $ 400. This will lead to higher taxes for higher-income businesses.
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