By: Andrew Rosen, CFP®, CEP®

Like it or not, come January 20th, 2021 there will be a new POTUS living at 1600 Pennsylvania Ave. His name is Joe Biden and he’s on the more moderate side of the Democratic party. This article, however, will not be about who resides there. Instead, it’ll be about one of the two certainties in life besides death: Taxes!

There’s been much written on the proposed Biden Tax plan, and I figured I’d distill it down to a quick article and give my thoughts, along with any planning strategies.


Although what you’ll read is a campaign trail “plan,” it’s important to note two key things. One, usually the bark is worse than the bite. Two, what’ll be able to be passed actually comes down to the two Georgia Senate runoffs come January 5th. If one of the two seats goes Republican, it’ll take a lot of steam off the Biden plan, as he’ll need a more subdued approach to get anything passed.

What’s the Story?

There’s a lot written about the proposed tax plan, as I mentioned. Below are the most notable changes suggested.

  1. Increase Top Tax Bracket– Biden mentioned he doesn’t want to attack anyone making under $400,000. I suppose that’s good news for the majority of people reading this. If you’re above that threshold; however, he wants the top tax bracket to increase from the current 37% to a minimum of 39.6%, where it was before the Trump plan. There’s been talk of that percentage being potentially higher, but I think this is one of the more likely things he can get passed.
  2. Increasing Payroll Taxes– This one seems a bit bonkers to me. Today, you pay Social Security tax on your first $137,700 of income at 6.2%. Your employer also pays the same 6.2% on that income. For everything above that threshold, there’s no more SS tax paid. In theory, you’re maxed out on the benefit received. However, the proposal would change that 6.2% for both employee and employer again on income over $400,000. Thus, you would pay SS tax on your first $137,700 and again on all income of $400,000 and over.
  3. Long Term Capital Gains Tax– If you’re over the arbitrary one million dollars in income, the Biden Tax Plan wants to tax your long-term capital gains at ordinary income tax rates. Currently for that income, it’s at 20% plus 3.8% Medicare tax. This effectively increases the tax owed on those dollars to 39.6% from 23.8%.
  4. Elimination of StepUp in Basis at Death– A long standing exception for capital gains was at death. If you inherited an asset that had capital gains, you essentially got basis valued at death. This means if the decedent bought something for $1 (and never sold it) and then at death the value was $1,000,000, there would be $999,999 imbedded long-term capital gains. However, if you inherited those funds and sold them the next day, your basis would be $1,000,000 and thus no taxes owed. This was always a great benefit for everyone whether “wealthy” or not. Getting rid of this would certainly create a lot of proactive planning.
  5. Cap Tax Benefits for Itemized Deductions to 28%- Staying consistent, President Biden would like to cap one’s itemized deductions to 28% of value on those earning $400,000 or over. Essentially, this limits the high-income earners tax benefits for itemized deduction to just 28%, rather than the full amount.
  6. Repeal of Estate Tax Threshold- Today, each of us gets a very favorable $11.58 million in estate tax exemption, meaning we can all pass that much of assets to a non-spousal individual without incurring any Federal estate tax. The proposal would go back to the pre-Trump plan, effectively cutting the figure in half to roughly $5.8 million per person. Naturally, not as many of us are affected by this change.
  7. Temporarily Increase the Child and Dependent Care Credit- The current tax credit is $3,000 and the proposal would increase this threshold (for the time being) to $8,000 per child. It’s a nice little benefit and one of the things aimed to reduce taxes for the below $400,000 earners. Additionally, there are talks of temporarily increasing the Child Tax Credit (not to be confused with the former). The proposal increases it from $2,000 to $3,000 for children who are 17 or younger and gives an additional $600 bonus credit if you have children under 6.
  8. Tax Relief for Student Loans- This one doesn’t seem to be fully cooked yet, but it’s clear Biden/Harris want to do something to help the mounting student loan debts. There seems to be some relief coming and a possible forgiveness after 20 years of payments. Not only that, the forgiveness (which today would be taxed as ordinary income) would no longer be taxed. ‘Yippee’ if you still have student loan debt, and ‘darn it’ if you paid it off early!
  9. Reinstating First Time Home Buyers Tax Credit- Another proposed tax benefit is reinstating the first-time home buyers credit up to $15,000. Certainly, it’s an incentive to buy that first home, although it stings a bit if you just bought one in 2020!

Now What?

The above is a summary of the bigger ticket items extrapolated from the Biden tax proposal. Likely something will get passed, and if I were a betting man (hey, did you know I grew up next to Atlantic City?), Georgia will give at least one Republican seat and thus mute the impact. I personally have mixed feelings on the above, but can save that for a bottle of red wine and some good debate. Instead, the question is what can you do about it today?

There isn’t much time left in the year, and I certainly would tread carefully about major changes. That said, we know what the tax rates are today and we know they won’t be cheaper over the next 4 years. You should be careful when making moves today that may not pan out and thus force unnecessary taxes.

That said, if you’re really concerned, here are a few items you could do.

  1. Roth conversions– This could force income in a lower tax bracket.
  2. Force incomes for this tax year- Not everyone has that ability, but if you do and are near the top income bracket, it could be worth considering.
  3. Take Capital Gains now– If you’re a really high earner (over 1M, which doesn’t seem to be going down) and/or you want to sell assets in the next 4 years, you may want to consider doing so before year end.
  4. Estate Tax- This is a really tricky one. There are many things you can proactively do on the step up of basis (i.e., take at your parent’s lower tax rate now), or address the lowering of the estate tax limit. This needs to be handled carefully, and I highly recommend consulting with not only your financial planner, but also your estate planning attorney. (Need one? I got just the guy 😊!)
  5. Take the losses now- If this year presented losses for you that you haven’t realized, you may want to consider taking some of them now. This way you can carry them forward to help offset any of these changes that may occur. If you have this capital loss carry forward, it can help reduce future tax burdens.

2021 or Bust.

With a few short weeks left and a lot of uncertainty, I feel it’s always better to be informed than not. In the infamous words of Burton Cummings from The Guess Who, “Seasons change and so do I.”

We’re here to help you adapt, regardless of what changes are coming.

As always stay wealthy, healthy, and happy.

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