---
title: Year-End Tax Planning Under A Biden Presidency
description: Year-End Tax Planning Under A Biden Presidency
---

[Member News | CGCCUSA ](https://www.cgccusa.org/en/news)

# [Year-End Tax Planning Under A Biden Presidency](https://www.cgccusa.org/en/news/year-end-tax-planning-under-a-biden-presidency)

 Written by [CGCC](https://www.cgccusa.org/en/news/author/cgcc) | November 12, 2020

**Source:** [BDO](https://www.bdo.com/insights/tax/federal-tax/year-end-tax-planning-under-a-biden-presidency)  
**Published:** November 2020

Although vote counting continues and  
 legal challenges to the election endure, many news media organizations are  
 projecting that former Vice President Joe Biden will become the 46th President  
 of the United States on January 20, 2021.

 The House of Representatives will remain under  
 Democratic control, but control of the Senate is somewhat less certain since  
 the balance of power will be determined in January 2021 following a run-off  
 election for two open Senate seats in Georgia. The run-off is necessary because  
 neither of the candidates in either of the races obtained more than 50% of the  
 total vote count as required by the state’s election law. A win by the two  
 Democratic candidates would shift the balance of power in the Senate from one  
 of GOP control to one where neither party has a majority. In that case, if all  
 Senators vote along party lines (including independent senators who typically  
 vote with Democrats), any deadlock on legislation would be broken by Vice  
 President-elect Harris casting the deciding vote. This tiebreaking potential  
 would also determine the Senate leadership, the ratio of committee memberships  
 between the parties and the leadership of each committee.

 Under a [Biden administration and if the Democrats assume control of  
 both the House and the Senate](https://www.bdo.com/insights/tax/federal-tax/tax-policy-post-2020-election), taxpayers are likely to  
 see increases to the corporate tax rate and to the top tax rate for  
 individuals. However, should the Republicans retain control of the Senate, it  
 would be difficult to effect any tax rate changes and most provisions in the  
 Tax Cuts and Jobs Act (TCJA) (as passed during the Trump administration) would  
 continue until they generally expire after 2025.[1]

## **What does this mean for taxpayers planning for year-end?**

Assuming taxable income is consistent from year to year, but tax rates are expected to increase, a taxpayer may wish to [accelerate income and defer deductions](https://www.bdo.com/insights/tax/private-client-services/the-2020-tax-planning-paradox-accelerate-income) to higher income tax rate years. Assuming the same, but with a constant or declining income tax rate, then taxpayers may wish to take the tried-and-true approach to [year-end tax planning](https://www.bdo.com/insights/tax/federal-tax/individual-year-end-tax-planning-for-2020) by accelerating deductions and deferring income.

 President-elect Biden has indicated that he would like to see the reduction or elimination of the tax cuts made by the TCJA. He believes that the tax system should be changed to ensure that large corporations and high-net-worth individuals pay their "fair share” of taxes. For individuals, President-elect Biden has proposed increasing the top income tax rates and expanding the Social Security tax base, as well as curtailing or eliminating various incentives that are currently available to high income taxpayers. If these plans are implemented, roughly $4 trillion would be raised over the next 10 years, as reflected in estimates obtainable through the Tax Policy Center and the Tax Foundation. The additional tax revenue would be used to pay for spending initiatives to improve the nation’s infrastructure, developing alternative energy sources and building up the U.S. manufacturing sector.

 To be successful in implementing proposed changes, the timing of any future tax increases will be balanced against the need to keep the economy strong and resilient at a time when the country is trying to address the economic slump that was brought about by the coronavirus pandemic.

 Despite all of the uncertainty, significant tax law changes are possible over the next few years, so it is important for taxpayers to understand both current tax law and changes that may be on the horizon. The following summarizes President-elect Biden’s planned initiatives for both corporate and individual income taxes, Social Security and Medicare taxes and the estate tax, as well as various tax incentives.

### **Individual Income Tax Rates **

Current law provides for a progressive  
 income tax rate system, which means that tax rates increase as taxable income  
 increases. Under the seven-bracket system, tax rates for ordinary income start  
 at 10% and increase to 37% for taxable income of $622,050 for individuals  
 filing joint income tax returns in 2020, and $518,400 for individuals filing as  
 single taxpayers.

 Under President-elect Biden’s plan, the TCJA tax  
 cuts likely would be repealed and the top federal income tax rate of 39.6%  
 would be reinstated.

### **Capital Gains and Qualified Dividend Income**

Under current law, individuals are  
 subject to progressive income tax rates on capital gains and qualified dividend  
 income. The long-term capital gains rates are 0%, 15% or 20%, depending on a  
 taxpayer’s ordinary income tax bracket. Moreover, a net investment income tax  
 (enacted during the Obama administration) is imposed on high income taxpayers at  
 a rate of 3.8%, which brings the total maximum tax rate on long-term capital  
 gains up to 23.8%.

 Under President-elect Biden’s tax plan, the tax  
 rate on capital gains would increase to 39.6% for taxpayers with taxable income  
 of $1 million or more, plus the 3.8% net investment income tax. As a result,  
 taxpayers whose taxable income exceeds $1 million would be subject to an  
 effective tax rate of 43.4%.

### **Business Income from Pass Through Entities (Partnerships, S Corporations and Sole Proprietorships)**

Under current tax law, many businesses  
 qualify for a qualified business income deduction of up to 20%, which can lower  
 the effective tax rate on the business income of individuals from a high of 37%  
 to as low as 29.6% for qualifying businesses.

 President-elect Biden would phase out the tax  
 benefits associated with the qualified business income deduction for  
 individuals making more than $400,000 a year, thus effectively raising the  
 business income tax rate from 29.6% to 39.6%.  

### **Corporate Tax**

The TCJA reduced the corporate income  
 tax rate to a flat 21% rate from a progressive rate of up to 35% before 2018  
 and abolished the corporate alternative minimum tax.

 President-elect Biden would raise the corporate  
 tax rate from 21% to 28%, a middle ground between the top rate of 35% under the  
 Obama administration and the current 21% rate. He also would put in place a new  
 form of corporate alternative minimum tax that essentially would require  
 corporations to pay the greater of their regular corporate income tax or a new  
 15% minimum tax on worldwide book income.

  

### **Payroll Taxes**

A 6.2% Social Security tax and a 1.45%  
 Medicare tax currently are imposed on both the employer and the employee. While  
 the wage base for the Medicare tax is unlimited, there is a cap on the Social  
 Security tax base equal to the first $137,700 of employee wages (increasing to  
 $142,800 for 2021).

 In addition to the Medicare tax rate, which  
 totals 2.9% for the employer and the employee, an additional 0.9% Medicare tax  
 is levied on employees with wage and self-employment income above the same  
 thresholds that are applicable in the case of the net investment income tax  
 ($250,000 or more for joint returns or a surviving spouse, $125,000 or more for  
 a married taxpayer filing a separate return and $200,000 in all other cases).  
 This effectively increases the collective employer/employee rate or  
 self-employed rate to 3.8% (1.45% twice + 0.9%), which would raise the Social  
 Security and Medicare tax rate for self-employed individuals to 16.2% (12.4% +  
 3.8%).

 President-elect Biden has indicated that he  
 would remove the cap on the wage base for the Social Security tax for high  
 earners, defined as those making more than $400,000. These changes to the  
 Social Security and Medicare taxes would apply to employees and self-employed  
 individuals that have sole proprietorships or are partners in a partnership.

 It is uncertain whether wages between $142,800  
 and $400,000 would be subject to the additional income tax, or whether there  
 would be a so-called “donut hole” before the higher rate kicks in for  
 individuals with taxable earnings in excess of $400,000. This would raise the  
 overall income tax rate on some businesses to as high as 55.8% (39.6% + 16.2%)  
 before taking into account state income taxes.

### **Estate Tax**

The estate tax rate currently is subject to a progressive rate scale up to 40%. The estate tax is imposed upon the death of a taxpayer after an exemption allowance of up to $10 million per taxpayer, as indexed for inflation (currently $11,580,000 per taxpayer ($23,160,000 per married couple for 2020)). In addition, beneficiaries are entitled to a step-up in the tax basis of all inherited assets based on the date of death valuation or the alternative valuation date.

 President-elect Biden would reduce the exemption amount to pre-Obama levels of $3.5 million per taxpayer, while increasing the top estate tax rate to 45%. He has also suggested eliminating the regime that allows for a step-up in tax basis on the date of death or alternative valuation date.

### **Investments into Distressed Areas**

The TCJA introduced significant incentives for investments in [qualified opportunity zones](https://www.bdo.com/insights/tax/federal-tax/opportunity-zones-tax-incentives) (QOZs). These rules allow taxpayers to defer recognition of capital gains where the proceeds are reinvested in a property directly or a QOZ fund property within 180 days.

 The capital gains deferral exists until the earlier of the time the QOZ property is sold or December 31, 2026. In addition to the deferral, there is a 10% tax reduction if the fund is held for five or more years, a 15% reduction in tax if the property is held for seven or more years, and if the investment is held for 10 or more years, the appreciation of the QOZ fund investment (not the original gain but the post-acquisition gain) qualifies for a step-up in tax basis, essentially excluding the appreciation from gross income.

 In addition to QOZs, a new markets tax credit is available to investors that inject capital into community development entities. The credits are progressive and vest with each year of expenditures and can equal up to 39% of the cost of the new markets tax credit project.

 President-elect Biden has indicated that he would like to continue both programs and may be willing to expand and make the new markets tax credit program permanent.

### **Manufacturing and Business Incentives**

Tax incentives currently are available for low-income housing, reducing fossil fuels and using alternative energy, as well as employer incentives for hiring individuals that qualify for the work opportunity tax credit and for hiring individuals with disabilities. Tax credits also are available to employers for providing child-care facilities on their premises so that working parents can continue working.

 President-elect Biden supports these programs but would like to add a tax credit for manufacturing goods in the United States. He also has proposed imposing a tax penalty on corporations that ship jobs overseas in order to sell products back to the United States.

### **Conclusion**

There is much riding on the outcome of  
 the 2020 presidential and congressional election process. The direction of any  
 year-end tax planning involves knowing which direction future tax rates will  
 go.

 Year-end planning decisions typically consider  
 the tax consequences of both the current year and the next year. If marginal  
 tax rates are expected to remain unchanged or to drop, taxpayers should  
 consider ways defer income to the next year and accelerate deductions into the  
 current year. Conversely, if marginal tax rates are expected to increase in 2021,  
 taxpayers may wish to consider strategies to accelerate income into 2020 and  
 defer deductions to 2021.

 Despite the economic and financial turmoil many  
 taxpayers have experienced in 2020, as well as the coronavirus pandemic, this  
 year is no exception in terms of tax planning. Understanding the possible  
 consequence of the presidential election and Senate race results may be useful  
 in helping taxpayers make informed decisions about their taxes before year-end.

[1] It should be noted that the passage of legislation also may be affected by the Senate “legislative filibuster rules” and whether these rules are maintained, revised or abolished.

For questions concerning this article, kindly contact Larry Miao ([smiao@bdo.com](mailto:smiao@bdo.com))

[View full post](https://www.cgccusa.org/en/news/year-end-tax-planning-under-a-biden-presidency)

```json
{
  "@context" : "http://schema.org",
  "@type" : "BlogPosting",
  "author" : {
    "@type" : "Person",
    "name" : "CGCC"
  },
  "dateModified" : "2025-01-21T09:06:52.741Z",
  "datePublished" : "2020-11-12T21:22:42Z",
  "headline" : "Year-End Tax Planning Under A Biden Presidency",
  "image" : {
    "@type" : "ImageObject",
    "height" : 60,
    "url" : "/hs/hsstatic/content_shared_assets/static-1.4092/img/default-amp-logo.png",
    "width" : 60
  },
  "mainEntityOfPage" : "https://www.cgccusa.org/en/news/year-end-tax-planning-under-a-biden-presidency",
  "publisher" : {
    "@type" : "Organization",
    "logo" : {
      "@type" : "ImageObject",
      "height" : 60,
      "url" : "/hs/hsstatic/content_shared_assets/static-1.4092/img/default-amp-logo.png",
      "width" : 60
    },
    "name" : "News"
  }
}
```