Last year’s presidential race was a little unsteady— to say the least. When the economy began to regress with the onset of COVID 19, business owners looked toward the November election in hopes that it would be a turning point. While the economy seems to be recovering in 2021, it is important for tax professionals and their clients to understand the implication of President Joe Biden’s win.

Biden vs. Trump Tax Plans- Businesses

During his time in office, Donald Trump signed the Tax Cuts and Jobs Act (TCJA) into law. This plan altered the corporate tax code in significant ways including:

• Lowered the corporate tax rate from 35% to 21%
• Established a 100% bonus depreciation deduction through the end of 2022
• Created a 20% deduction for owners of pass-through entities (Qualified Business Income Deduction)
• Established a 10.5% minimum tax on income from intangible assets held offshore
• Altered the Research & Development (R&D) expenses deduction

President Biden ran his campaign on a much different platform than Trump when it came to tax plans. He plans to:

• Raise the corporate tax rate to 28% and enact a 15% tax on book profits for large businesses
• Increase GILTI tax rate from 10.5% to 21%
• Maintain current tax law in regard to bonus depreciation
• Reverse TCJA’s amortization requirement and let businesses fully deduct R&D expenses in the year they are incurred

Perhaps one of Biden’s biggest plans is to establish a “Made in America” tax credit, which allows certain businesses a 10% credit for creating manufacturing jobs for American workers. The credit would be given to businesses that:

• Bring production and service jobs back to the U.S.
• Expand facilities to increase production abilities
• Reopen a closed factory
• Increase payroll for U.S. workers
• Reinvent existing facilities to help further advance manufacturing technologies

Biden vs. Trump Tax Plans – Individual 

On an individual tax plan basis, Trump spent his time:

• Slightly lowering tax rates for specific individuals
• Taxing capital gains at preferential rates that range from 0% for the lowest earners to 20% for the highest earners
• Enabling the Child and Dependent Care Credit plan, which awarded $3,000 per dependent (maximum of $6,000) to households making less than $43,000 a year
• Establishing the Earned Income Tax Credit, which is a refundable tax credit for low-income working families

Biden’s plans for the future differ from Trump’s in that he wants to:

• Raise the top marginal tax rate back to 39.6%
• Maintain the preferential rate for capital gains for taxpayers with less than one million of taxable income and for higher earners, tax capital gains at 39.6%
• Increase the Child and Dependent Care Credit to have a maximum of $8,000 per dependent (max of $16,000) and make it available to families earning less than $125,000 and partially available to those earning between $125,000-400,000
• Extend Earned Income Tax Credit to workers 65 and up

There are also a number of new tax credits that President Biden plans to enact, including:

• Renter’s Tax Credit— limits rent and utilities payments to 30% of low-income renters’ income
• Informal Caregiver Tax Credit— $5,000 tax credit to informal caregivers who are not eligible for the Child and Dependent Care Credit
• Homebuyer Tax Credit—$15,000 per individual first-time homebuyer credit

One of Biden’s most talked-about ideas is his plan to not raise taxes for anyone making less than $400,000 a year. For those making over this threshold, Biden plans to:

• Use the Social Security Tax on the income above $400,000
• Phase out tax credits (like the Child and Dependent Care Credit)
• Eliminate the 20% Qualified Business Income Deduction
• Get rid of itemized deductions 

Biden vs. Trump Tax Plans – Reality

The reality of Biden’s tax plan going into the future is that it is just a plan. While it is important to understand his intentions and what they would look like, it does not mean that they are the rules right now. It is important to understand the current reality and what could possibly change so that you and your clients are well-equipped to handle your own finances.