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Election Impact and Year-End Tax Planning Opportunities

In the event of a shift of power in the White House and Senate from Republican to Democrat, we would likely see significant changes in the tax laws. These changes could be implemented as early as next year, to be effective January 1, 2021. In the table below, we present a summary of what the impact of the election could be, based on the candidates’ various proposals. As you can see, some of the proposals that could be implemented (after a change in party control) would have a significant impact for many of our clients.

Issue Current Rules Biden Trump
Individual tax rates Highest marginal tax rate is 37.0% Highest marginal rate: 39.6% (for taxable income over $400K); phase out the qualified business income deduction (Section 199A) for taxable income above $400K Retain the 37.0% top marginal rate; lower 22% rate to 15%; adjust brackets to move more middle-income taxpayers to lower brackets
Itemized deductions Under the Tax Cuts & Jobs Act (TCJA), standardized deduction increased to $12.4K (single filers), $24.8K (married); many itemized deductions were eliminated Cap benefit of itemized deductions at the 28% rate; restore the Pease limitation on itemized deductions for taxable income above $400K Make the changes to itemized deductions under the Tax Cut & Jobs Act (TCJA) permanent
Capital gains & dividends Capital gains rates of 15% (up to $441K) and 20% (over $441K) for qualified capital gains and dividends (no dollar limitation) Favorable tax treatment for capital gains and dividends up to $1 million; above $1 million taxed at 39.6% ordinary income rate Reduces tax rates for capital gains to a top rate of 15%; index gains for inflation; create limited-time capital gains tax holiday
Child tax credits Child Tax Credit of $2,000 (max); plus $500 dependent credit, plus dependent care credit of $600 Child Tax Credit of $3,000 (plus $600 for children under 6); make credit fully refundable Require social security numbers for credit eligibility
Education Generally, forgiven student loan debt is taxable , and there is no tax benefit for contributions to state-authorized scholarship organizations Special tax exclusion for student loan forgiveness Provide a tax credit for individual and corporate donations to scholarship-sponsoring organizations
Corporate tax rates Flat corporate tax rate of 21%; no alternative minimum tax (AMT) Flat rate of 28%; reinstate corporate 15% AMT on profits over $100 million Preserve rates under TCJA; 100% expensing for certain industries
Payroll taxes 12.4% social security payroll tax (split between employers and employees at 6.2% each) on wages up to $137,700 Additional 12.4% tax for income above $400,000 (with an exempt gap for wages between $137,700 and $400,000) Potential reprieve of employee social security taxes beyond the end of 2020
Estate tax $11.58 million estate tax exemption, to revert to $5 million after 2025 Retain the reversion to $5 million in 2025; eliminate the step-up in basis on inherited assets Extend the expanded estate tax exemptions beyond 2025; retain step-up rules
Other Proposals   First-Time Homebuyers’ Tax Credit of up to $15K; refundable renter’s tax credit; expand ACA premium tax credit “Explore America” tax credit for travel expenses; School Choice tax credits

Presidential Candidate Tax Plan Proposals (as of September 2020)

In the coming weeks we will present various tax-planning opportunities for individuals to consider taking before the end of the year. If you have questions now, we encourage you to contact us to set up a time to review your current planning and discuss which estate planning strategies may be appropriate for you.

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