NOW WHAT?
A look at potential tax law changes under new administration by Michael J. McCormack, estate & business succession planning specialist, Lincoln Agribusiness Services Many clients have asked me “Now What”? The 2020 election is finally over. It is time to consider potential key tax law changes that may affect you in 2021 and beyond. Given the election results, many tax and fiscal issues remain uncertain. No doubt, the ultimate make-up of the tax laws will depend on the direction taken by our nation’s leadership (including President-Elect Biden and Congress), either by their ability or inability to agree on tax and fiscal legislation. POST-ELECTION UNCERTAINTY REMAINS With a new President and Congress coming in 2021, there are many variables and hurdles to overcome regarding any legislation (including tax legislation). As it stands currently, nothing has changed regarding income, estate, gift, generation-skipping transfer, payroll, etc., taxes. When debating budgetary issues, Congress must address projected deficits, anticipated increases in infrastructure spending, projected increases in defense spending, proposed tax increases, funding Social Security and social security and disability insurance, funding Medicare, etc. With respect to income and estate tax changes, there are several obstacles to overcome. While there may be a focus on potentially raising income and estate taxes, there is not currently a clear path to higher federal taxes. For example, it remains unclear whether there will be a POTENTIAL TAX CHANGES Income tax rates
Republican or Democratic Senate majority in 2021, given a couple expected election runoffs in early January 2021. Thus, if the Senate control is not decided until after 2020, year-end tax planning will be difficult because of the uncertainty of the Senate majority in 2021. Ultimately, if the Senate remains in Republican control, most of the existing tax laws may remain in effect at least until the 2022 elections. If the Senate comes under Democratic control in 2021, one should expect income and estate tax law changes to be enacted Assuming there will be tax law changes, will they be “permanent”? The democratic process in the U.S. is ever changing. Given this dynamic, even if income tax rates increase and the estate tax reverts to a lower exemption amount (as called for by President Biden), the democratic process may cause a return of higher (or lower) income tax rates and estate tax exemptions at just about any time in the future. One only needs to recall 2010, when the estate tax was repealed for one year, as evidence of tax law “permanency.”
CONSIDERATIONS GIVEN THE POST-ELECTION UNCERTAINTY The chart below includes various tax proposals as set forth in President-Elect Biden’s campaign. If you believe President Biden’s income and/or estate tax campaign proposals will become law in 2021, you might consider the following actions. Generally higher for income in excess of $400.000
Payroll taxes
FICA tax imposed for earned and self-employment income in excess of $400,000
Capital gains and qualified dividend income
Apply ordinary income tax rates for income above $1 million
Qualified Business Income deduction
Repeal
C corporation income taxes
Increase tax rate from 21% to 28%, and provide a “minimum” tax on book profits above $100 million
Overhaul tax deductions for qualified plans
Provide a flat credit, instead of a deduction, for each dollar saved
Itemized deductions
Caps benefit for such deductions at 28%
Estate taxes
Revert to lower exemptions under previous law that existed prior to the Tax Cuts and Jobs Act, and possibly an increased tax rate
44
Utah Cattleman Seedstock Edition
...CONTINUED ON PAGE 46
VOLUME 7
•
FEBRUARY 2021
