While we are witnessing some residual legal wrangling in real-time, it appears all but certain that Joe Biden will take office on January 20, 2021, as the 46th President of the United States. That said, a lot of uncertainty still remains with regard to whether the incoming Biden administration will be able to get its agenda passed through Congress.
In particular, the two runoff races for the Senate seats in Georgia, which will take place on January 5th, will dictate whether the incoming administration will have the ability to make significant changes to our nation’s policies, or whether an “opposition Senate” will put the brakes on Mr. Biden’s agenda.
One of the areas that President-elect Biden focused on in his campaign was tax policy. So, even though there is still some uncertainty on how much of his policies could become law, it can never be too early to consider what those tax policy changes might mean for you, your family, and your business.
Accordingly, in this article, we take a look at the tax law changes that Mr. Biden suggested during his campaign, and we will consider how that might impact your estate planning choices in the very near future. If, after reading this article, you have more Florida tax and estate law questions, then we welcome you to contact the tax professionals of West Palm Beach, FL at Doane & Doane, PA. Call today at 561-656-0200 or fill out our online contact form.
The President-Elect’s Tax Proposals for Individuals
To be sure, President-elect Biden has made a number of tax policy proposals that will impact both individual taxpayers and corporations. In this article, we will focus on his individual tax proposals.
The best place to begin is Mr. Biden’s headline proposal, which is raising taxes on individuals with taxable income that is greater than $400,000. Unlike the “wealth tax” proposed by his former Democratic primary rivals, which was a tax on an affluent individual’s net worth, the higher tax on those making $400,000 is a fairly traditional way to shift the tax burdens among taxpayers.
Here are some other individual tax proposals on Mr. Biden’s platform:
1. Restore the top tax rate on ordinary income to 39.6%, which was what the rate was prior to passage of the Tax Cut and Jobs Act in 2017 (TCJA).
2. Increase tax rate on long-term capital gains for those making $1 million or more at ordinary tax rates, rather than at lower capital gains rates.
3. Reducing the Estate and Gift Tax exemption by restoring exemption to 2009 levels.
4. Eliminate basis step-up at death for inherited property.
5. Expand tax credits that traditionally give assistance to lower- and middle-class taxpayers, like the Earned Income Tax Credit, the Child and Dependent Care Tax Credit, and the Child Tax Credit.
6. Restore limitations on itemized deductions, which were repealed in the TCJA.
How Will These Tax Changes Impact Your Estate Planning?
While the impact of item #1 above is clear – top earners will pay at the former rate of 39.6% rather than the current rate of 37% on income – you would be wise to focus on items #2, 3, and 4 in the list above. Those could have the biggest impact on your estate planning in 2021 and beyond.
Let us take item #3 – the reduction in the Estate and Gift exemption – as an example. Under current law, you are able to transfer up to $11,580,000 during your life or at death without incurring any federal gift or estate tax. Anything above that amount would be taxed at 40%. If the country went back to 2009 levels, which is what President-elect Biden proposes, then the estate tax exemption would go down to $3,500,000, the gift tax exemption would go down to $1,000,000, and anything above those amounts could be taxed at the top rate of 45% (rather than 40%).
What could that mean for you? Assume for the moment that you have a family business worth $11,000,000. If you gave that business to your children this tax year, you would not owe any federal gift tax, because the gift is under the $11,580,000 threshold.
However, if you made that same gift based on Mr. Biden’s tax proposals (assuming a top tax rate of 45%), then you would owe 45% of any gift over $1,000,000. Thus, you would owe $4,500,000 in federal gift taxes.
As you can see from that one example, the possible changes in tax policy could have a substantial impact on your estate planning. It is highly recommended that you consider your estate planning strategies now before the end of the year, so you can implement them before the tax law changes for the year 2021.
Contact the Tax Professionals in West Palm Beach, FL at Doane & Doane to Protect Your Estate this Year Before Any Possible Changes Take Effect
Founded in 2003 by husband and wife legal team, Randell C. Doane and Rebecca G. Doane, Doane & Doane provides legal and financial services to families, individuals, and businesses throughout Southeast Florida.
Estate planning is about much more than just giving away property. It is an act of love and kindness, with the ultimate goal of providing for the future financial security of your loved one. At Doane & Doane, our tax and estate professionals help people plan for retirement, make provisions for loved ones, figure out future child support, and minimize tax liability. Experienced wills and trusts attorneys know which tools to use to get the best results for their clients. Our lawyers can help you determine which tools are best suited to your specific circumstances.
When it comes to probate matters, such as the formal administration of an estate, Florida fiduciaries seek the assistance of the attorneys at Doane & Doane, P.A. to administer and manage their trusts and estates. Notably, the founding partners of Doane & Doane are board-certified West Palm Beach Probate Attorneys. With the additional advantage of certified public accountancy in their backgrounds, they present a unique combination of skills and experience which enables them to effectively settle, administer, and manage clients’ trusts and estates.
Since the day we opened our doors, we have worked hard to earn a reputation as one of the region’s most prominent tax and estate planning law firms in Palm Beach County, Florida. Our dynamic team includes the firm’s founding partners, experienced associate attorneys, and an outstanding team of paralegals, legal assistants, and support
Call the tax professionals in West Palm Beach, FL at Doane & Doane, P.A. You can reach us at 561-656-0200. Call us today.