Planning for the Unknown: Preparing for Potential Tax Increases Under The Biden Administration

The Biden Administration’s American Families Plan and other tax proposals may significantly reshape the tax landscape for high-income earners, particularly those making over $400,000 annually.

Key Tax Proposals from the American Families Plan

Increase the top marginal income tax rate to 39.6% for households earning over $400,000
Tax long-term capital gains at 39.6% for households earning over $1 million
Eliminate step-up in basis for gains above $1 million at death (unless donated to charity)
Tax carried interest as ordinary income
Permanently extend excess business loss limitation rules
Apply the 3.8% net investment income tax uniformly to those earning over $400,000

IRS Enforcement Expansion

To reinforce compliance, President Biden also proposes $80 billion in funding for IRS audits, targeting high-income taxpayers and those suspected of tax avoidance. This effort would be paired with expanded IRS enforcement authority.

Additional Campaign Proposals Still on the Table

Although not part of the American Families Plan, these proposals remain under consideration:

Phase out the 20% QBI deduction
Limit itemized deductions to a 28% benefit and reinstate the Pease limitation
Reduce the estate tax exemption from $11.7 million to $3.5 million and raise the estate/gift tax rate to 45%
Impose the 12.4% Social Security tax on wages over $400,000

What Should Taxpayers Do Now?

1. Review Your Current Tax Profile

High-net-worth individuals, business owners, and family offices should assess:

Current income and deductions
Estate structure and multi-generational planning needs
Business interests and succession goals

2. Plan with Flexibility

Due to the uncertainty around the final scope or timing of new legislation:

Use “what-if” modeling and scenario planning
Consider the impact of retroactive provisions (e.g., capital gains tax changes effective April 28, 2021)

3. Capital Gains Strategy

Accelerate gains before rate increases
Coordinate capital gains with other income to avoid higher thresholds
Use or opt out of installment sales based on timing
Consider deferral tools: like-kind exchanges, opportunity zones, and ESOP rollovers

4. Revisit Your Estate Plan

Consider gifting now before exemption limits change
Explore trust strategies for multi-generational planning
Prepare to act quickly if legislative changes gain momentum

How We Can Help

We offer full-service planning for wealthy individuals and families, including:

Tax consulting and compliance for estate, income, gift, and trusts
Charitable giving and foundation strategies
Executive compensation and retirement planning
Cross-border tax analysis and compliance
IRS audit support and representation

Our experienced professionals can help you:

Monitor and interpret legislative developments
Model tax scenarios
Implement preemptive strategies to minimize liabilities

Let us guide you through the complexities of today’s tax environment—with clarity, foresight, and customized planning tailored to your financial goals.
Contact us to schedule a confidential consultation.