With the American Rescue Plan signed and its programs starting to move towards implementation, President Joe Biden’s administration is set to turn its head towards another new plan that could have wide-ranging impacts on the finances of American families and small business owners – tax reform. Though details are murky as of now and the passage of any bill is likely months away, the administration is said to be seeking the first major tax hike since the early 1990s.
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Biden’s Tax Plan Basics
Though the details are still light, here’s what are rumored to be possible planks in the forthcoming economic plan from the Biden White House:
Increasing the corporate tax rate from 21% to 28%
Raising individual income taxes for those earning more than $400,000 annually
Expanding the estate tax
Raising the capital gains tax for those earning at least $1 million annually
Pruning tax advantages for certain types of businesses
These were among the proposals Biden made when he was still on the campaign trail and aiming to differentiate his tax policies from those of President Donald Trump.. Some of the other planks in his platform then included raising taxes on foreign profits and ending real estate loopholes. Though there has not been any news about these potential plans, remember that this is still merely speculation; the outcome of the actual bill may be wildly different from what is being discussed now.
Biden Tax Plan: Individual Taxes
The big-ticket item in Biden’s plan is his push to raise individual income taxes on those earning more than $400,000 annually. During the campaign, he proposed a top tax bracket rate of 39.6%, though it isn’t currently known if that is what will be proposed in this plan.
Biden also wants to expand the estate tax, which currently only applies to those with estates worth more than $11.7 million.
Finally, Biden wants to change the capital gains tax rate so that it is higher for those earning at least $1 million per year. The capital gains tax applies to money earned from investments, and it is generally much less than the taxes on money earned as income or wages.
Biden Tax Plan: Corporate Taxes
Right now, the corporate tax rate is 21%. That number is a result of the Trump Tax Plan, passed in 2017. Prior to that, the corporate tax rate was 35%.
Biden is not proposing raising the corporate tax rate to where it was before Trump’s plan was passed. Rather, he is looking to split the difference and put the corporate tax rate at 28%.
The plan also calls for ending some tax preferences for pass-through businesses. This would result in these businesses paying more, creating more government revenue.
The Bottom Line
With the American Rescue Plan, the Biden administration put forward some big changes in the first 100 days of the administration. Now, the White House is apparently turning its eyes to a more normal use of political capital – tax reform. Though there is nothing concrete yet, the plan is expected to include increases to individual and corporate tax rates, plus the closing of certain loopholes.
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Photo Credit: © iStock/OlegAlbinsky
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