1. Higher taxes for individuals earning over $400,000 a year. They would be subject to a 39.6% marginal tax rate, up from 37% currently, and a 12.4% FICA rate on income above $400,000. (It’s not clear the same threshold applies to couples filing jointly.)

(Photo: Shutterstock)
2. Fewer deductions for individuals earning more than $400,000 annually. Business owners with pass-through income through partnerships, limited liability companies, S-corporations and sole proprietorships would no longer claim the Qualified Business Income (QBI) tax deduction.

(Photo: Shutterstock)
3. Smaller tax deductions for other top earners. Itemized deductions for taxpayers with marginal tax rates above 28% would be capped at 28%. (This change doesn’t affect the many taxpayers who no longer itemize deductions.)

(Photo: Shutterstock)
4. A 50% reduction in the exclusion amount for estate and gift taxes, from $11.58 million currently to $5.79 million per person, which is the level that existed before the 2017 tax cut legislation (The exclusion is double for married couples filing jointly.)

(Photo: Shutterstock)
5. Elimination of the step-up in basis for inherited assets, which would result in capital gains owed on those assets and, according to Levine, affect both high and low earners.

(Photo: Shutterstock)

Advertisement

6. Higher rates on capital gains and qualified dividends for those with incomes above $1 million. Both would be taxed at that taxpayer’s income tax rate rather than the 20% that currently prevails for that tax bracket.

(Photo: Shutterstock)
7. Elimination of 1031 exchanges for those with income above $400,000. A 1031 exchange, which gets its name from Section 1031 of the U.S. tax code, allows taxpayers to avoid paying capital gains taxes when they sell an investment property and reinvest the proceeds within certain time limits in a property of like kind and equal or greater value.

(Photo: Shutterstock)
8. Replacement of the full tax deduction for contributions to IRAs, 401(k)s, 403(b)s and other pretax accounts with a tax credit equal to a specified percentage of the amount contributed to the pretax account. The Tax Policy Center has estimated the credit at 26%.

(Photo: Shutterstock)
9. Multiple tax credits, including a first-time homebuyer tax credit up to $15,000, a caregiver tax credit of $5,000, an increased dependent care tax credit of $8,000 per child, up from $3,000, and $16,000 for two or more children, up from $6,000.

(Photo: Shutterstock)

If Joe Biden wins the presidency and the Democrats win control of the Senate, financial advisors should be braced for higher taxes on their wealthy clients. 

In the meantime, they should “educate themselves (and their clients) about the impact that each candidate’s position will have on them, and to help them plan accordingly as election results come in!” wrote Jeffrey Levine, CPA, the director of advanced planning at Buckingham Wealth Partners, in a recent report on proposed changes and year-end planning opportunities focused on the Biden tax plan.

(Related: 5 Predictions for Retirement Plans if Biden Wins Election)

Mishkin Santa, the international tax director of The Wolf Group, similarly told a recent session of the Financial Planning Association’s virtual annual conference that because “change is going to be constant throughout the next couple of years … the best thing to do is to put together short-term plans that can be converted to long-term strategy.”

(Related: What Happens to the Economy and Markets After the Election?)

Both Levine and Santa highlighted tax changes that are part of Biden’s platform, which are much more likely to be adopted if Democrats take control of both houses of Congress. Even then, however, Democrats may not agree to all these changes. They traditionally don’t operate in lockstep and other issues such as the continuing COVID-19 pandemic and sluggish economy are likely to take precedence.

Watch the slideshow above for major highlights of the Biden tax plan, many affecting wealthy Americans. The higher tax rates and fewer deductions for those taxpayers suggest that they “stuff their returns with as much income and with as many deductions as possible” in 2020, wrote Levine. “Year-end Roth IRA conversions would become a particularly attractive option for some.”

— Related on ThinkAdvisor: