Biden’s Proposals for Higher Taxes

During the presidential campaign Joe Biden made his tax priorities clear: He wants to eliminate the tax cuts of the Trump-era leading to higher taxes on corporations and the “rich.” With the Democrats gaining control of the Senate, the possibility of the implementation of his tax agenda has become more likely.

Of course, how much of his agenda and the timing of the enactment is not known. Currently, other priorities such as rolling out the vaccines, an unsteady economy, and unemployment levels may prevent implementation this year.

Another reality that is currently being placed on the “back-burner” is the enormity of our ever-growing National Debt. At the time of this writing the debt is just under 28 Trillion dollars, with more stimulus being proposed.

Also, the President has an assortment of social agenda programs he discussed on the campaign trail. Some analysts believe tax rates will have to be increased to bring this deficit problem under control.

Now, let us look at a few of the major Biden proposals that may be implemented:

  • The top individual federal income tax rate would rise from 37% back to the pre-Trump rate 39.6%.
  • Individuals who earn $400,000 or more would pay higher payroll (Social Security) taxes. The current rate is 12.4% which is split between employers and employees.
  • The corporate rate would rise from 21% to 28%.
  • Long-term capital gains and qualified dividends would be taxed at ordinary income tax rates. This will nearly double the current top rate of 23.8% (20% long-term capital gains plus 3.8% Net Investment Income Tax) to 43.4%.

These tax proposals could significantly affect people’s take-home income and future financial decisions.

Here are a few ideas for consideration and discussion with your financial and/or tax advisors:

Does it make sense to pay taxes now rather than risk higher taxes in the future?

Example: Pay the capital gain tax on appreciated stocks now at a known 15 or 20% OR risk delaying and possibly paying nearly double the tax later. Because many markets are at an all-time high, capital gains are remarkably high on many assets, would it make sense for you to take some profits?

Could a conversion of Traditional IRA to a ROTH IRA be beneficial to you?

This strategy would involve paying the taxes now at a potentially lower rate. The after-tax money in the account grows tax-free. One option to consider may be to convert a portion of IRA’s to ROTH and leave some IRA money untouched. This creates a type of tax diversification or arbitrage, enabling you to be flexible when deciding which account to withdraw from the future.

As we all know the only two certainties in life are Death and Taxes. However, Uncle Sam does give you an option: “Pay me now or pay me later.” The choice is yours.

When you work with any of the advisors at Medallion Financial Group, we can help you chart a course through the complex world of wealth management and investment planning. We work together to build a dedicated, long-term, and disciplined approach that is tailored to your unique needs and objectives. Are you ready to start a conversation?

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About the Authors

John and Laura Stohlman have been working with clients to help them achieve retirement success since 1987. Both John and Laura have the following designations: Certified Financial Planner (CFP®) and Chartered Federal Employee Benefits Consultant (ChFEBC®).

At Medallion Financial Group, we believe financial planning is about Family. We have been helping families invest in the future since 1987 through a holistic planning approach. We recognize there are a variety of needs when it comes to retirement planning, plan rollovers, annuities, college planning, life insurance options, and investment management. It is easy to get lost in a sea of choices. Our financial advisors help with the basics and beyond to enable our clients to get the education, advice and management they need to retire with confidence.

Our focus is twofold: first and foremost, we are fiduciary advisors. We stand against any violation of laws, values, and ethics. Second, we treat our clients as part of our family, not only those who call Maryland and Georgia home, but clients across the US who have benefited from our reputation of personal service, integrity, and expertise.

We strive to exceed client’s expectations – because we have high expectations of ourselves.

Securities and investment advisory services offered through H. Beck, Inc., Member FINRA/SIPC. H. Beck, Inc., and Medallion Financial Group are not affiliated. In accordance with IRS Circular 230 Disclosure, and to ensure compliance with requirements imposed by the U.S. Internal Revenue Service, we inform you that any tax-related information contained in this material was not intended or written to be used, and cannot be used, by any taxpayer for the purpose of (1) avoiding tax-related penalties under the U.S. Internal Revenue Code or (2) promoting, marketing or recommending to another party any tax-related matters addressed herein.
Roth IRA rollover may not be suitable for all individuals and tax consequences may apply. Rollover of the non-Roth portion into a Roth IRA is a taxable event. Tax issues involving IRAs can be complex. Please consult with your tax or legal adviser regarding your specific situation. Investments will fluctuate and when redeemed may be worth more or less than when originally invested.

post icon in Taxes by John and Laura Stohlman Feb 10, 2021