Every election year brings the potential for change, with new laws and proposals in the works before candidates even take office. This election is no different, and the proposed changes in the law are especially worrying for Florida residents with high net worth.
Joe Biden’s tax plan proposes raising rates and lowering exemptions from the top down, with the highest impact on the extremely wealthy. With potentially drastic modifications to tax law on the horizon, we recommend that clients review their estate plans and for businesses to start their year-end tax planning now.
What the 2020 Presidential Election Might Mean for Florida Residents
If Joe Biden becomes the next President of the United States and the Democrats take a majority in the Senate, proposals based on existing laws could be modified with a simple majority vote. Congressional Democrats agree on many key elements of the plan, and it is possible that some tax proposals could be made retroactive once enacted.
Potential changes include:
- Increasing estate taxes. The Tax Cuts and Jobs Act of 2017 gave individuals a lifetime estate and gift tax exemption of $11.58M (or $23.16M for married couples), nearly doubling the previous amount that individuals could transfer without incurring the 40% federal estate and gift tax. Biden’s tax plan proposes to reduce the exemption for gifts made to family members, making gifts made both during a person’s lifetime and after their deaths subject to federal estate tax.
- Raising income taxes. Individuals with taxable incomes above $400,000 could have their income taxes increase from 37 percent to 39.6 percent, as well as be subject to the Social Security payroll tax.
- Reducing capital gains. The current long-term capital gains tax rate is 20% for single-person households with taxable income over $441,451, or $496,601 for married people filing jointly. Biden’s plan proposes taxing capital gains at the same rates as ordinary income for households earning than $1 million, nearly doubling the existing rate.
- Eliminating Step-Up in Basis. “Step-up in basis” is a tax code provision that allows beneficiaries to sell off inherited assets that have increased in value while paying little to no taxes. Parents often invest in assets at one price (the basis) and pass it to an heir after it has accrued significant appreciation. Currently, the new owner of the asset pays taxes on the amount of the original investment—not the market value of the asset at the time of death. Biden’s plan would essentially eliminate any step-up, taxing the unrealized capital gains within the asset at death regardless of whether the new owner sells the asset.
- Changing business tax structures. If you own or operate a business, you could see a significant increase in the corporate income tax rate, jumping from 21 percent to 28 percent. This is in addition to a proposal to alter the minimum tax on corporations with profits of $100 million or more, which would have to pay the greater of their regular corporate income tax or the 15 percent minimum tax. Finally, the tax rate on Global Intangible Low Tax Income (GILTI) earned by foreign subsidiaries of U.S. firms is set to increase from 10.5 percent to 21 percent.
Take Action Now and Avoid the Rush in November
You don’t need to wait until the election has been decided before making changes to your estate plan. There are plenty of pre-election strategies that can help you pass on the maximum of what you have earned over your lifetime to your heirs. Our estate planning legal team can help you utilize your lifetime exemptions now, using assets to fund your trust or transfer property to your heirs, moving assets out of your estate before any changes in the law are made.
At Yolofsky Law, we don’t just draft documents. We help you make informed and empowered decisions about life and death, both for yourself and the people you love. As your Personal Family Lawyer®, we can help you articulate your wishes and legally protect your loved ones for years to come. Give us a call today to discuss your options with our trusted advisors.