At KROST Wealth and our associated tax and account firm, KROST, our goal is to provide you with timely news and insights. As we venture into the next presidential election, it is important to note the differences between the two candidates’ tax proposals as we look toward the next four years.
As one may suspect, each candidate’s proposed plan differs drastically from the other with unique impacts on individuals and businesses depending on the outcome of this race. Below we’ve compiled a high-level overview of some of the major facets of each platform with some of our own insights along the way.
| Incumbent President Donald Trump |
Former Vice President Joe Biden |
| Individual Tax Rates |
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Proposes a permanent extension of individual tax provisions in the Tax Cuts and Jobs Act, including a reduction in the tax rate of 39.6% to 37% for anyone with a taxable income of $518,400 or higher (individual) and $622,050 (joint filing), as well as a limitation on SALT deductions
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Proposes to revert the top individual tax rate from 37% to 39.6% for incomes above $400,000.
Restores the Pease Limitation (cap on tax benefits for itemized deductions for those earning more than $400,000)
o Deductions capped at 28% of value limiting itemized deductions for high-income earners
No tax increases for taxpayers under $400,000 threshold
Proposes increase in estate and gift tax rates
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| KROST Insight |
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Considering other tax liabilities, accelerate taxes for retirement accounts for Roth Conversions, Secure Act provisions
Qualified Dividends preferred over interest income
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Consider accelerating income for 2020
Consider ROTH conversions for estate transfers
High income earners to limit interest income from investments
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| Capital Gains & Step Up in Basis |
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No formal proposal for Capital Gains, but has suggested lowering the maximum on long-term capital gains to 15%
No proposed changes to step up in basis
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Proposes taxing capital gains and dividends at same rate as ordinary income tax for taxpayers with over $1MM in income
Proposes to eliminate step up in basis for capital gains and tax all unearned capital gains at death
Proposes to eliminate Like-Kind Exchange (1031 Exchange) for real estate investments
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| KROST Insight |
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Consider deferring long term capital gains until 2021
Makes Cash vs. LTCG gifting strategies less complex
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Consider accelerating long term capital gains tax in 2020 before higher taxes hit in 2021
Consider gifting appreciated stocks over cash to charities
Consider accelerating sale of investment/rental property in 2020 for like kind exchanges
Understand how a DST may increase income and/or diversify real estate holdings
Build long term capital gains in retirement assets and use Qualified Retirement Distribution to lower income on higher income retired families.
No step up in capital gains makes Trusts more beneficial as an investment / Real Estate ownership
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| Tax Credit for Retirement Savings |
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No current proposals |
Replace tax deduction of retirement plan contributions in favor of a 26% tax CREDIT
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| KROST Insight |
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Makes Roth IRAs more valuable planning tools for higher income earners
The intent of this change is to incentivize lower income taxpayers to save more for retirement
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| Pass-through Business Income |
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Proposes a permanent extension of 20% Qualified Business Deduction enacted in the TCJA (199A); presently the deduction is set to expire in 2025 |
Proposes a phase-out of the pass-through deduction for earners over $400,000
No more QBI for Real Estate investments
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| KROST Insight |
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Understand benefits from REITs and other 199A investment vehicles |
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| Carried Interest |
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No formal proposal |
No formal proposal
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| Corporate Tax Rates |
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No change to the current plan (21% federal corporate income tax rate) |
Proposes an increase from 21% to 28%
Establish corporate minimum book tax of 15% on firms with $100 million or more in profits
Impose tax penalties on corporations with jobs overseas |
| KROST Insight |
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Makes retirement plans more attractive, defined benefit, defined contribution
Pass through entities become more attractive again to avoid double taxation on corporate distributions.
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| Payroll Taxes |
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Proposes permanent exemption from tax for employee payroll taxes deferred under COVID executive order through the end of 2020 |
Proposes 12.4% Social Security Payroll Tax for earnings in excess of $400,000 (tax would be evenly split between employers and employees)
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There are many actionable planning strategies to employ to safeguard your wealth depending on the outcome of the election. Below is an overview.
Financial Strategies to Consider Should We Re-elect President Donald J. Trump
- Consider exploring strategies to hedge rising taxes in the future. Strategies include:
a. Roth Conversions
b. Life Insurance, during retirement and legacy to children
- Develop Charitable Remainder Trusts for income in retirement
- Gift appreciated assets instead of cash to avoid capital gains
- Grantor Retained Annuity Trusts
- Review Beneficiary designations on retirement accounts to understand the effect of Secure Act on stretch IRA rules
- Consider investments that allow QBI deduction (199A)
Financial Strategies to Consider Should We Elect Former Vice President Joe Biden
- Consider accelerating capital gains before expiration in 2021
a. Consider Qualified Opportunity Zones to offset capital gains
b. Long held stocks may have appreciated, understand the effect of concentrated stocks in a portfolio
- Understand how Like Kind Exchanges may affect your long-term real estate investments
a. Consider DSTs or Qualified Opportunity Zones
- Grantor Retained Annuity Trusts
- Accelerate gifting strategies (including discounts for lack of control and lack of marketability) in 2020 to avoid lower exemption amount in 2021
- Take advantage of higher gift exemptions with Irrevocable Life Insurance Trusts in 2020
- Offset Net Operating Losses with Roth Conversions
Questions about wealth management and your taxes? We can help. Contact us today at KROSTWealth.com for a consultation with our team of experts.
