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Differences Between the Trump and Biden Tax Plans

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    One major point of contention for the recent presidential election is what each candidate would provide in their tax plan. Without researching a credible source, a person could easily be fed misinformation about what each candidate was offering taxpayers. Fortunately, we can highlight the major portions of Trump’s and Biden’s tax plans. If you wish to know more about the Trump and Biden tax plans, our California tax research attorneys are here for you. At the Tax Law Offices of David W. Klasing, we are committed to offering our clients the legal representation needed to reach their unique goals. Our firm is here to discuss the differences between Donald Trump’s and Joe Biden’s tax plans.

    Trump/Biden US Individual Taxes Plan

    Under the current tax plan, taxes for individual taxpayers are separated into seven brackets: 10%, 12%, 22%, 24%, 32%, 35%, and 37%. The seven tax brackets depend upon the income level of the taxpayer and whether the taxpayer files with a spouse or separately. These tax brackets were already in place when the Tax Cuts and Jobs Act (TCJA) passed by Donald Trump was enacted in 2017. However, the TCJA lowered the tax rate for each bracket.

    In regard to individual taxes, Trump’s tax plan may have offered the middle class a 10% tax cut. However, other portions of the TCJA would have remained in effect until January 1, 2026, when the above tax rates would become permanent.

    Alternatively, Biden’s tax plan for individual taxpayers is to increase the tax rate in the highest bracket from 37% to 39.6%. Currently, individuals in the top tax bracket pay a 37% rate on taxes on income of $518,401 for single filers and $622,051 for married taxpayers who file jointly. If you are married and file separately, the 37% tax rate would trigger at $311,026 per year. If Biden’s tax plan is implemented, taxpayers that earn more than $400,000 per year would be subject to increased taxes, while the rates in other brackets could remain the same.

    Capital Gains Rate and Investments

    Trump and Biden have also offered changes to the capital gains rate and investments. Trump’s plan was to use executive action to cut the capital gains rate to 15% and increasing the potential for tax breaks for investments.

    When dealing with capital gains rate and investments, Biden proposed a 39.6% tax rate for taxpayers with income over $1 million per year. Additionally, Biden also intends to seek opportunity zones for community and nonprofit organizations.

    Student Loan Forgiveness

    Student loan forgiveness and education is another major issue that Trump and Biden sought to address with their respective tax plans. Ordinarily, student loan forgiveness would be included as income for a taxpayer unless the taxpayer has worked as a public servant or in a similar profession for a certain period of years.

    Biden seeks a significant change to student loan forgiveness by offering the benefit tax-free as long as the borrower was enrolled in an income-based repayment plan for 20 years. Alternatively, Trump has not spoken at length about student loan forgiveness but has supported legislation for tax credits for donations to private school scholarships.

    To learn more about how Trump and Biden will address other important tax matters such as employment and Social Security taxes, you should continue reading and consider working with an experienced dual-licensed California tax attorney and CPA that could help you manage your taxes.

    Trump/Biden Tax Plan for Compensation and Benefits

    Trump and Biden proposed various changes to compensation and benefits for taxpayers. Employment taxes are a matter that was addressed by both candidates. Under the current tax law, payroll taxes could be applied up to $137,700 of an employee’s wages in 2020. The FICA tax of 12.4% for this income would be divided between the worker and their employer.

    Trump proposes a change to payroll taxes by allowing workers earning up to $104,000 a year the ability to defer payroll taxes from September 1st to December 31st.

    When it comes to employment taxes, Biden has chosen to focus on employers that misclassify their employees. Specifically, Biden plans to eliminate the practice of allowing employers to misclassify employees as independent contractors in order to avoid paying payroll taxes. Additionally, Biden also seeks to increase the Social Security taxable wage base limit for taxpayers who earn more than $400,000 per year.

    Retirement Incentives

    Under the current law, employees who have access to a 401(k) plan or similar types of retirement plans could contribute a percentage of their salary to their plan of choice. The percentage of salary placed in the retirement fund is not taxed until it is withdrawn, and excessive penalties could be assessed for early withdrawal. However, not every employer offers retirement incentives to their employee.

    Joe Biden intends to change the current law by implementing “automatic 401(k)” plans for employees who are not provided this benefit by their employer. Additionally, instead of taxing early withdrawals, Biden proposes exceptions that could eliminate tax penalties for early withdrawal. For example, if a taxpayer is a victim of domestic violence, and they require funds to escape from an abusive relationship, the additional fees would be waived under these circumstances.

    Additionally, Biden promotes tax credits for small businesses to make it easier to initiate retirement plans for employees.

    Health Care Benefits

    Currently, low-income taxpayers could use tax credits to assist with premium payments to purchase health insurance through the Affordable Care Act (ACA). Under Trump’s tax plan, the ACA would be completely repealed. Previously, the Trump Administration eliminated the individual mandate rule of the ACA that penalized people for not having healthcare. Now, a taxpayer is not liable for any fines if they do not possess healthcare.

    Biden seeks to implement a number of changes to American taxpayers’ health care benefits. One of Biden’s health care goals is to eliminate the 400% income cap on tax credit eligibility for the premium tax credit. Biden also intends to impose tax penalties on pharmaceutical corporations that unreasonably increase the price of their drugs and eliminate tax deductions for advertisements by pharmaceutical corporations.

    Additionally, Biden would also like to increase accessibility to refundable health premium tax credits to attempt to keep families from spending more than 8% of their income on health care fees.

    Trump and Biden Tax Plans for U.S. Business Taxes

    Both Trump and Biden have announced potential changes for U.S. business taxes.

    Corporate Tax Rate

    The TCJA altered the corporate tax rate to 21%, which Trump has no plans to alter. Biden would like to change the corporate tax rate to 28% with at least a 15% book tax for corporations that report over $100 million in income in the U.S., but that also pay zero or negative federal income taxes. Biden’s tax plan also proposes a 10% offshoring penalty surtax on income from a production by a U.S. company overseas that is sold on U.S. soil.

    Credits and Incentives

    Currently, businesses are awarded a non-refundable tax credit if they pay a portion of wages to new employees who are eligible as members of a disadvantaged group. There are no planned changes under Trump’s tax plan for credits and incentives for U.S. businesses.

    One of the major tenets of Biden’s credits and incentives tax plan for businesses is that he offers a 10% “Made in America” tax credit for businesses that create jobs for American workers. This credit could be provided for a number of reasons, such as reopening a closed facility or expanding an existing facility. U.S. companies would also be able to claim this credit if they increase pre-Covid wages for manufacturing jobs.

    Fossil Fuels

    Currently, the law provides assistance to U.S. businesses that invest in fossil fuels, and Trump’s tax plan would increase tax breaks for companies that continue to use fossil fuels.

    Biden’s tax plan would eliminate fossil fuel subsidies for companies. As a result, a U.S. company would be unable to gain tax benefits for drilling wells and the depletion of oil and gas deposits.

    There are many other aspects of each candidate’s tax plan that are not discussed above. However, it seems that Trump’s tax plan would largely build upon the TCJA, while Biden’s tax plan proposes a number of sweeping changes for individual taxpayers and U.S. businesses.

    The Tax Law Office of David W. Klasing could help you navigate through possible changes in the tax law in the near future.

    Consult with an Experienced California Tax Attorney and CPA to Discuss How Trump/Biden Tax Plan Affects You

    If you are uncertain about how a Trump or Biden tax plan may affect your tax liability, you should work with an experienced tax preparation and compliance lawyer today. The skilled legal team at the Tax Law Offices of David W. Klasing possesses years of experience handling a variety of tax regulations for our clients, and we would be honored to work with you. To schedule a confidential legal consultation to discuss your tax liabilities, you should contact the Tax Law Offices of David W. Klasing at (800) 681-1295. You may also contact our firm online.

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