Presidential Election Tax Analysis


October 14, 2020
Presidential Election Tax Analysis

This month’s Financial Planning “Todd Talk” continued with its virtual theme, via Zoom. Our topic was geared towards next month’s presidential election as Todd, joined by Whisman Giordano & Associates President, and Managing Partner, Joseph Giordano, CPA, CGMA, and Director/Tax Department Chair, Lisa DeRose, CPA, CGMA, came together to discuss some of the potential tax implications in the year 2021 and beyond.

As the outcome of the election is out of our control, we believe that understanding the potential assumptions and challenges associated with either a Former Vice President Joe Biden or President Trump’s victory can ease some of the uncertainty you may feel.

The “Todd Talk” highlighted the necessity for proactive tax planning and was broken up into two sections. First, we dove into potential changes from a business perspective. We then spoke about potential changes to individuals. A summary of some of the major tax-away from these two categories are below:

Businesses:

  • Corporate Tax
    • President Trump plan: Flat tax rate at 21%
    • Joe Biden’s proposal: Raise rate to 28%. Posing a minimum tax for book profits (not tax profits) over $100 million taxed at 15%. Corporate would pay the greater of 28% or 15% minimum tax. Additional penalty surtax for any corporation that sends production or manufacturing jobs overseas at 10%.
      • Current rates are 21% – however, there is (currently) a 50% deduction which makes the effective tax rate 10.5% on foreign subsidiary income. Under the Biden proposal, they wouldn’t raise the tax rate, but they would eliminate the deduction bring the rate back up to 21%.
    • New Markets Tax Credit
      • This federal program is designed to stimulate investment in low-income communities. This investment would in turn provides tax credits to investors for their equity investment in certified developments.
        • President Trump plan: Status-Quo (plans to extend the program beyond 2020)
        • Joe Biden: Plans to expand the program and make it permanent.
      • Depreciation
        • Under President Trump’s plan, he would like to extend current provisions that allow for bonus deprecation of 100% in the year that you buy new or used equipment (this used to only be new equipment).
        • Under Joe Biden’s proposal he would repeal Tax Cuts Jobs Act (TCJA) and along with it the depreciation provisions which would also remove bonus depreciation and section 179 expense.

Individuals:

  • Federal tax brackets
    • President Trump’s plan continues with the Tax Cuts and Jobs Act (TCJA) and maintains the status quo.
    • Joe Biden’s proposal repeals the Tax Cuts Jobs Act (TCJA) and states to only raise the top tax bracket from 37% to 39.6%.
  • Capital Gains
    • Current rates range between 0-20% on gains from the sale of capital assets (stock, bond, or real estate).
    • President Trump has expressed interest in lowering the top rate to 15%.
    • Biden’s plan affects those who have taxable income over $1,000,000. Joe Biden’s plan is to eliminate capital gains rates for these individuals, this would make them pay at their ordinary income rate on their investment dollars (which would be the top tax bracket at Biden’s proposed rate of 39.6%).
  • Estate Planning
    • President Trump’s plan is looking to keep the estate exemption at $11.58 million and continue with the step-up in basis provision.
      • Estate exemption limit is the value of your estate that passes estate tax-free. Gross estate values over this exemption limit pay tax of 40%.
    • Joe Biden is looking to reduce the estate tax exemption to $3.5 million and remove the step-up in basis.
      • Step-up in basis states that when you pass, almost all inherited assets step-up in basis to fair market value. Keeping this simple, if you bought $10,000 in Apple stock in a brokerage account and when you pass it’s worth $100,000. The fair market value, or $100,000, is the new basis your heirs will have in the stock. Your heirs could sell the stock for $100,000 and pay no tax on the gain. This new legislation will now result in heirs owing capital gains tax on the $90,000 gain (if sold at $100,000) as the basis is now carried over to heirs instead of adjusting to fair market value on the date of death.

One important consideration that was made by Joe was that while some of these changes may result in significant changes Congress has a say in whether these laws are passed. So, no matter what either President in 2021 wants, Congress has a say in what is ultimately passed. This could result in changes to everything noted above.

The “Todd Talk” wrapped up with questions from those who attended and a brief touch on the push for renewable energy and an evaluation of what this might mean to industries involved in energy. If you’re interested in listening to this “Todd Talk” in its entirety, please send us a note to [email protected] and we’ll make sure you receive the link. Lastly, if you’re drawn to learning more about the election’s potential tax changes and how you may be impacted, we invite you to view our recent post on Joe Biden’s Plans for the 2020 Election.