With less than a week left until the upcoming Presidential election, it’s nearly GO TIME for US voters!
The “polls” still have Biden leading President Trump by a solid margin. But it’s worth noting that Hilary Clinton held roughly the same lead at this point in the run-up to the 2016 Presidential election. And we all know that turned out…
Moreover, incumbent candidates have historically dominated elections in American politics, typically scoring victories over their challengers for over five decades.
In other words, it’s still anybody’s ball game!
All of this said, each candidate has a distinct perspective on taxation. And depending on who wins, resulting tax law could vary significantly.
To give you a bit more insight on how this could impact your personal finances, here’s a head-to-head comparison of each candidates tax plans:
With regard to Income Tax, President Trump’s tax plan is already in place. It came via a huge tax code overhaul in the form of 2017’s Tax Cuts + Jobs Act.
Key highlights include…
- A roughly across the board cut for personal income taxes.
- The Standard Deduction was raised to $24,000 for married couples filing jointly, and $12,000 for individuals or married couples filing separately.
- The personal exception was eliminated.
- The tax credit for children was raised from $1,000 per child to $2,000 per child, $1,400 of which is refundable.
- The Federal deduction for state and local income taxes was capped at $10,000.
- The mortgage interest deduction was capped at $750,000.
Biden’s plan aims to raise income taxes and limit deductions for wealthier folks, in addition to increasing corporate taxes, while further easing the financial burden on growing families.
Key Highlights include…
- Raising the tax rate on the highest income bracket from 37% to 39.6%
- Itemized deductions (for things like medical expenditures and charitable giving, to name a few) would be capped at 28% for households with an average annual income over $400,000
- An increase in the child tax credit to $3,000 per child, plus an additional $600 bonus for children under 6 years of age.
- An increase in corporate income taxes for C Corp designated businesses from 21% to 28%, which could lead to a nearly 2% drop in after-tax income.
To help mitigate the enormous economic impact COVID-19 has wrought on many businesses, President Trump is aiming to slash Payroll Taxes.
Specifically, Trump has called for…
- A temporary halt to payroll taxes for workers earning less than $104,000 annually.
- Forgiveness of current deferred payroll taxes (granted under the CARES Act)
- Making some elements of current payroll tax cuts permanent.
Biden, on the other hand, is looking to up the ante on payroll taxes for high-income earners.
Specifically, Biden wants to…
- Extend the 12.4% Social Security tax obligation to earnings over $400,000 annually, which is currently capped at $137,000.
- Collect on at least a portion of the payroll tax deferrals, rather than issue blanket forgiveness.
- Fully reinstate pre-COVID payroll taxes.
Depending on your current income, your Capital Gains tax rate could range anywhere from 0% to 15% to 20%.
On top of this, President Trump has suggested making further cuts to Capital Gains taxes. He is also interested in expending Opportunity Zones, which is an investment vehicle that can serve to shelter Captial Gains income.
Conversely, Biden has proposed raising the Capital Gains tax rate to 39.6% for those with an annual income over $1 million.
Jumping back to President Trump’s Tax Cuts + Jobs Act, the amount you can pass on to your heirs tax-free was nearly doubled. This enables you to pass on up $11.58 million to your heirs without being subject to the 40% federal estate tax. And this covers both inheritance and a straight “gift” monetary transfer to your heirs.
Biden aims to increase the federal estate tax to 45%, cap the tax-free limitation at $3.5, and limit the cap on gift transfers to $1 million.
Biden also plans to eliminate the step-up basis, which allows heirs to in effect inherent the tax-basis of assets bequeathed to them. Thus, if heirs were to sell their inherited assets immediately, they would pay little to no Capital Gains taxes on the sale. And doing away with the provision would add a huge tax liability to the sale of inherited assets, like real estate.
Keep In Mind, This is ALL Subject to Congressional Ratification…
While aspects of President Trump’s tax plan are already in place, via 2017’s Tax Cuts + Jobs Act, any revisions or extensions to this program must first pass Congress. And the same goes for President Trump’s proposed plans for Payroll and Capital Gains taxes.
And of course, this applies to all of Biden’s proposals as well. Moreover, the Democrats would also likely need to capture the Senate and maintain control of the House of Representatives to see Biden’s plans passed into law