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I hope you and your families are doing well and staying safe & healthy!

As a result of Joe Biden’s victory in the presidential election, you may be wondering how this will change tax laws going forward. Below is a listing of some of the major tax changes that may be pursued in a Biden administration. These proposed changes cover individual income taxes, Social Security taxes, various tax credits, and estate taxes.

• Raise top rate to 39.6% from the current 37%
• Repeal the $ 10,000 cap on state & local income tax deduction
• Phase out the 20% qualified business income (QBI) deduction
• Limit the tax benefit of itemized deductions to 28% of face value for high earners
• Social Security tax of 6.2% for employees and employers would kick in for salaries over $ 400,000
• The current Social Security wage cap is $ 137,700. Wages between this amount and $ 400,000 would not be taxed for Social Security
• A new refundable $ 15,000 tax credit for first-time homebuyers
• Increase the credit for childcare expenses to $ 8,000 for one child and $16,000 for two or more children (currently $ 600 & $ 1,200)
• A new credit of $ 5,000 for individuals who provide long-term care to elderly or disabled family members
• A new $ 5,000 credit for businesses who hire persons with disabilities
• A renter’s tax credit “designed to reduce rent and utilities to 30% of income”
• Allow workers age 65 or older to claim the earned income tax credit.
• Lower the estate tax exemption to $ 5 million from the current exemption of $ 11.6 million
• Eliminate the step-up in basis for capital assets that are inherited. This may only apply to wealthier estates.
• Under current law, cost basis increases to the FMV at date of death which eliminates accumulated capital gain.

Remember that these are proposed changes and could very well be altered, especially if the Republicans retain majority control of the Senate. Another thing to watch would be the effective date of any new legislation. Presumably, any tax law changes passed during 2021 would not take effect until tax year 2022, but there is always the possibility that changes could be enacted retroactively. Stay tuned.

We are committed to serving your tax preparation and tax planning needs. If you have questions or need clarifications about any of the above policies, please do not hesitate to contact our office.