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Preparing for Potential Tax Increases Under the Biden Administration

The Biden Administration’s American Families Plan and other tax proposals may complicate the tax landscape for high-income earners. Many of the proposals target taxpayers earning more than $400,000 per year.

The American Families Plan proposals include:

  • Increasing the top marginal income tax rate to 39.6% for households making over $400,000;
  • Taxing long-term capital gains at 39.6% for households making over $1 million;
  • Reducing the step-up in basis for gains in excess of $1 million at death and taxing the gains if the property is not donated to charity;
  • Eliminating carried interest and taxing that income at ordinary income rates;
  • Permanently extending excess business loss limitation rules; and
  • Applying the 3.8% net investment income tax consistently for those making over $400,000.

To add significance to these proposals, President Biden also proposes earmarking $80 billion for IRS audit efforts that will target high-income individuals who have engaged in tax avoidance or other tactics to reduce their taxable income. The additional funding will be accompanied by increased IRS enforcement powers.

In addition, President Biden previously put forth the following proposals during his election campaign:

  • Phasing out the 20% qualified business income tax deduction;
  • Limiting the benefit of itemized deductions to 28% of their value and restoring the “Pease limitation” cap on itemized deductions;
  • Reducing the lifetime estate tax exemption from $11.7 million to $3.5 million (back to 2009 levels) and increasing the estate and gift tax rate from 40% to 45%; and
  • Imposing the 12.4% social security payroll tax on earned income above $400,000.

These proposals, although not specifically mentioned in the American Families Plan, continue to be part of the President’s tax agenda.

What Can Taxpayers Do Now?

Given the real possibility of targeted tax increases on the wealthy, as well as the uncertainty of when any increases might take effect, individuals, business owners and family offices should review their current situations to identify opportunities in which their overall federal and state tax liabilities could be minimized.

  • Taxpayers should evaluate the extent to which they can time the recognition of income and deductions within a desired tax year. Planning should not only be driven by current and future tax rates but also by the taxpayer’s individual facts and circumstances, including income and cash goals.
  • Due to the uncertainty of whether tax legislation will ultimately be passed, and to what extent, tax planning efforts should include multiple “what-if” scenarios to prepare for a range of possible legislative outcomes and effective dates.
  • As the future tax landscape takes shape, taxpayers should consider strategies to minimize tax on their capital gains, such as:
    • Accelerating capital gains to take advantage of lower rates;
    • Managing levels of other taxable income to avoid higher rates on capital gains;
    • Timing when tax is due by using or electing out of the installment method; and
    • Using deferral strategies such as like-kind exchanges and investments in qualified opportunity zones.

Individuals and families should revisit their estate plans considering President Biden’s tax proposals. Individuals — especially those with large estates — should evaluate the benefits of multi-generational wealth transfers, the use of trusts and other estate planning opportunities, and be prepared to implement strategies in advance of proposals becoming law.

Tax Alerts
Tax Briefing(s)

The Supreme Court has reversed and remanded California v. Texas, holding that the Plaintiffs do not have standing to challenge the Patient Protection and Affordable Care Act’s (ACA) minimum essential coverage provision.


The IRS issued two new, separate sets of frequently-asked-questions (FAQs) to assist families and small and mid-sized employers) in claiming credits under the American Rescue Plan (ARP). These FAQs provide information on eligibility, computing the credit amounts and how to claim these important tax benefits. Enacted in March to assist families and small businesses with the fallout of the COVID-19 pandemic and recovery underway, the ARP enhanced the child and dependent care credit and the paid sick and family leave credit.


The IRS has started sending letters to over 36 million families who, based on tax returns filed, may be eligible to receive monthly child tax credit payments starting July. Eligibility of these families are being evaluated based on information provided by taxpayers in their 2019 or 2020 tax returns, or through the Non-Filers tool while registering for an Economic Impact Payment. In addition, taxpayers who are eligible for advance child tax credit payments will receive a second, personalized letter listing an estimate of their monthly payment, starting July 15.


The IRS has finalized regulations relating to the mandatory 60-day postponement of certain time-sensitive tax-related deadlines by reason of a federally declared disaster. Further, the regulations clarify the definition of "federally declared disaster." The regulations affect individuals who reside in or were killed or injured in a disaster area, businesses that have a principal place of business in a disaster area, relief workers who provide assistance in a disaster area, or any taxpayer whose tax records necessary to meet a tax deadline are located in a disaster area.


The IRS has released a revenue procedure explaining how a taxpayer changes its method of computing depreciation for certain residential rental property. Automatic consent procedures for changing accounting method are available for taxpayers adopting the depreciation method changes.


An eligible partnership may file amended partnership returns for tax years beginning in 2018, 2019, and 2020 by filing a Form 1065, U.S. Return of Partnership Income (Form 1065), with the "Amended Return" box checked. The partnership may also issue an amended Schedule K-1, Partner’s Share of Income, Deductions, Credits, etc. (Schedule K-1), to each of its partners.


An estate was allowed a marital deduction because the decedent’s marriage was valid in the country of celebration. The decedent, who was Jewish, obtained a religious divorce under rabbinical law in New York from his first wife after a New York court had declared his Mexican divorce invalid, which resulted in the declaration that his marriage to a second wife was null and void. The decedent traveled to Israel and married his third wife in an Orthodox Jewish ceremony. The Israeli marriage certificate noted that the decedent was free to marry because he was divorced. The government claimed that because the divorce was not valid under state law, no marital deduction was allowed because the property did not pass to the decedent’s surviving spouse.


The Treasury Department and the IRS have announced that they intend to amend the base erosion and anti-abuse tax (BEAT) regulations under Code Sec. 59A and Code Sec. 6038A to defer the information reporting requirements for qualified derivative payments (QDPs) until tax years beginning on or after January 1, 2023. The current regulations provide that the QDP reporting requirements apply to tax years beginning on or after June 7, 2021.