In 2017, then-president Donald Trump signed the 2017 Tax Cuts and Jobs Act. In addition to lowering income tax rates for single filers, heads of household, and married couples (filing jointly or separately), it raised the standard deduction to $12,000 for single filers, to $18,000 for heads of household, and to $24,000 for married couples filing jointly.
The plan also allowed pass-through businesses, including partnerships, S corporations and sole proprietors to deduct up to 20% of their business income. Since that time, the number of tax returns claiming the deduction has risen significantly.
However, many of Trump’s tax cuts could be undone should Biden’s Made in America Tax Plan be signed into law. According to the White House, Biden’s plan aims to raise federal income taxes on individuals making more than $400,000 per year and raise the corporate tax rate to the highest rate in the industrialized word.
According to a press release put out by the White House, “more than 90 Fortune 500 companies didn’t pay federal taxes on their US-based income in the 2018 tax year,” and that the current President believes that profitable corporations shouldn’t be able to “get away with” paying little to no taxes A second study, the press release notes, found that the average corporation paid roughly 8% in federal taxes.
Additionally, the wealthiest taxpayers, who have an average income if more than $2.2 million per year, would see the largest increase in their federal taxes, and roughly 2/3 of individuals in this tax bracket would see their taxes go up by approximately $159,000 annually.
The plan would also raise the top-tier income tax rate from 37% (which was implemented under Trump’s tax plan) to 39.6%. It’s estimated that the change would only impact the top 1% of American workers.
The White House further notes that if passed, Biden’s tax plan would raise up to $110 billion within the next 10 years.
The tax code is complicated, and if Biden’s plan is signed into law, it will impact countless businesses and individuals throughout the US. If you have questions about how Biden’s tax plan could impact your federal income taxes, or you’d like to learn more about whether your business will still be eligible to take advantage of the 20% pass through deduction, we can help. Call our office today to schedule a free, no-hassle consultation with a CPA you can trust.