The drawn-out election of 2020 is finally over, with Democrats winning both Senate seats in Georgia.
As a result, President Biden will have slender majorities in the House and Senate. These slender majorities limit many dramatic policies, which require 60 votes in the Senate, but tax policy is likely to change in some significant ways.
Congress can use special budget procedures to pass tax hikes without needing 60 Senate votes to break a filibuster. A simple majority works. The big question is what will the Democrats do? First, it is almost certain the top tax rate on regular income will head back to 39.6%. Second, the corporate tax rate will likely be lifted to 28%. Third, the limit on state and local tax deductions is likely to double from its current $10,000 to at least $20,000. This is beneficial to taxpayers in states with high-income tax i.e. Oregon.
The Biden campaign proposed eliminating the step-up basis at death for inherited assets. But doing so would make many CPAs and tax accountants around the country scream. Some people have no idea what their parents or grandparents paid for an asset and finding out would be an administrative nightmare. Instead, look for Congress to put a lower limit on what can be passed on tax-free to heirs. We expect the estate tax exemption amount to fall to $6 - 7 million versus $11.6 million in 2020.
Another common question people have is when we should expect these tax changes to start. Some investors fear they'd be retroactive to January 1, 2021, but with unemployment rates still high and recovery slowed by COVID-19, we think they will more likely be delayed until January 1, 2022.
As tax law changes it’s important to have a proactive tax strategy! There are things you can do to mitigate taxes by planning ahead. My team and I would be delighted to help you do this.