Regardless of your hopes for the upcoming election, it makes sense to help clients plan now for the possibility of significant change to the current tax code. If President Trump wins a second term, he has stated he will push to make permanent certain provisions in the 2017 Tax Cuts and Jobs Act (TCJA) that would otherwise expire in a few years. If, on the other hand, former Vice President Joe Biden wins the presidential race, we could very likely see sweeping change to the tax code.
Whoever wins the election will face the formidable challenge of raising revenue to support increased government spending while at the same time bringing the economy out of the current recession and addressing the shortfall in Social Security funding. The tax code will surely be one of the main tools used to achieve the balancing act required to manage all three initiatives. As with any kind of uncertainty, the best time to prepare is now. Here are three areas that are likely to impact individual investors the most in the event of a Biden presidency:
1. Taxes on capital gains could rise dramatically
Capital gains taxes were reduced under the TCJA to 0 percent, 15 percent or 20 percent, depending on a taxpayer’s income level. If Trump wins in November, the existing structure could remain static or even be reduced. Under Biden’s plan, however, taxes on capital gains could almost double to 39.6 percent for taxpayers earning more than $1MM.
Sean Weissbart, an attorney with Blank Rome in New York City, notes, “With the possibility of a hike in the capital gains tax rate, if Biden is elected, clients with appreciated assets may want to consider selling before year-end in order to lock in more favorable tax rates.”
2. Estate taxes are likely to increase