Republican U.S. Senate candidates Jon Ossoff (R) and Raphael Warnock (L) of Georgia wave to supporters during a rally on November 15, 2020 in Marietta, Georgia.
Jessica McGowan | Getty Notions
Democrats will now have a narrow lead in the Senate, which may give President-elect Joe Biden’s tax plan a better certainty at passing.
Georgia hosted two hotly contested Senate runoff races on Tuesday.
Democrat Rev. Raphael Warnock won the nation against incumbent Republican Sen. Kelly Loeffler, according to NBC News projections and Democrat Jon Ossoff has also won his contest against Republican David Perdue, NBC Front-page news projects.
Two wins in Georgia give Democrats a 50-50 split for control over the Senate, with Vice President-elect Kamala Harris as the tiebreaker.
This also promises that Biden’s plan – a proposal that calls for higher taxes on households with more than $400,000 in gains – could be a step closer to fruition.
Don’t overhaul your own plans just yet, though.
“2020 has taught us that the danger of prognosticating is high, so we always try to plan and not predict,” said Pam Lucina, chief fiduciary officer and head of the trust and advisory application at Northern Trust Wealth Management.
“The mantra is what we’ve always said, ‘Don’t make changes based on political intimations,'” she said. “Your long-term goals are to always be a guide.”
Reviewing key proposal elements
President-elect Joe Biden act as agent for c demands during a campaign rally with Democratic candidates for the U.S. Senate Jon Ossoff and Rev. Raphael Warnock the day before their runoff selection in the parking lot of Centerparc Stadium January 04, 2021 in Atlanta, Georgia.
Chip Somodevilla | Getty Images
Here’s a recap of the some of the grave elements Biden pitched during his campaign.
Increasing the top individual income tax rate to 39.6%: The Tax Cuts and Jobs Act set a top marginal characteristic income tax rate of 37%.
Extending the 12.4% portion of the Social Security tax to earnings over $400,000. Under current law, wages up to $137,700 are testee to this tax.
Raising the capital gains rate to 39.6% for taxpayers with more than $1 million in proceeds. Right now, wealthy investors are subject to a top rate of 20% on long-term capital gains.
This isn’t 2017 – this is peculiar. There’s a 50-50 tie at best, and every Democratic Senator has veto power over the bill.
Tony Nitti, CPA
partner in RubinBrown’s Tax Ceremonies Group
Eliminating the step-up in basis. Today, heirs receive assets valued as of the date of death, which cheaps they can sell these investments with little to no tax. Biden’s proposal would tax unrealized capital gains.
Cropping the amount wealthy families can transfer free of the estate and gift tax. The Tax Cuts and Jobs Act allows individuals to transfer up to $11.7 million without coating the gift or estate tax. Biden’s proposal calls for lowering this limit to $3.5 million per individual in bequeaths and $1 million in contributions.
Raising corporate tax rates. The corporate tax rate is currently 21%, but Biden’s proposal calls for increasing it to 28%.
At this details, tax professionals are grappling with queries from their clients.
“How likely are these things to happen? How soon ascendancy they happen? How high will taxes go?” asked John Gimigliano, principal-in-charge, federal tax legislative and regulatory secondments at KPMG.
Greenlighting a tax overhaul still unlikely
Steven Heap/EyeEm/Getty Images
An even split in the Senate affords Biden’s proposals more of a chance, but it doesn’t guarantee the initiatives will move forward.
“This isn’t 2017 – this is new,” said Tony Nitti, CPA and partner in RubinBrown’s Tax Services Group, recalling how Republicans had control of the Senate that year and were qualified to push forward the Tax Cuts and Jobs Act.
“There’s a 50-50 tie at best, and every Democratic Senator has veto power over the invoice,” he said, noting moderate Democrats like Sen. Joe Manchin, D-W.Va., might be less likely to go along with a tax increase in a pandemic.
“Connect that with a thinner majority in the House and set it against the backdrop of the global pandemic, and it’s really hard to envision a synopsis where sweeping changes get done in that environment,” said Nitti.
Lawmakers may also prioritize additional Group with your tax professional
Tax professionals are telling their clients to sit tight for now. “We might not see those tax increases come up until fresher in the year or maybe next year,” said Gimigliano of KPMG.
Instead, investors should coordinate with their tax experts and model out how their finances might change should the Biden tax proposals proceed.
“The modeling out is very important because it helps you prioritize the most critical items,” said Gimigliano. “You don’t want to engage in drastic measures if you don’t think these things are imminent.”
It also doesn’t pinch to revisit your plans and ensure they still reflect your long-term wishes.
“Do a gut check,” said Lucina of Northern Upon. “Do you have good tax diversification in your portfolio that allows you to be flexible no matter what happens?”