What Does the Biden Tax Plan Mean for Small Businesses?
As the Democrats take control of the House, Senate, and Presidency, you may think that Biden is going to pass his tax reforms with no contest. This is anything further from the truth. Due to the fact that the democrat majority margin is so slim in the house and senate, even one vote could throw an entire tax reform bill into contention.
Contrary to the agenda being pushed during the 2020 campaign, these first couple months of the Biden administration has put a low priority on tax reform. Of the numerous executive orders Biden has issued, none seem to contain anything about tax cuts or hikes, but there are still way to figure out exactly how his past and future orders mean for your taxes.
During the 2020 campaign, the Biden Administration’s website had a myriad of literature on his policy proposals. But ever since the election, the website only contains essays, privacy policies, and a merch shop. There are no more directly links to his policies on his website, but some journalists who covered his campaign still have access to those lost pages.
In this article, we discuss the proposals which are procured from a number of his campaign web pages, including where the administration wants to increase taxes and where tax cuts are likely to occur.
Higher Corporate Taxes
As found in the Kiplinger article, Analysis of Biden’s Tax Plan, Biden does plan to increase corporate tax rates from 21% to 28%, which is not quite as high as Obama’s corporate tax rate of 35%.
Many small businesses are not subject to corporate tax, only those which are incorporated, excluding sole proprietorships and partnerships.
““75% of small businesses are unincorporated pass-through entities, so owners report business income on their personal taxes.””
Additionally, Biden looks to establish a 15% minimum corporate tax, which is a federal minimum for all corporations, addressing the Democrat point that corporations do not pay federal income tax.
Although it may look like there is nothing but tax hike for corporations, Biden also proposed a 10% “Made in America” tax cut for companies that manufacture in the US, employing Americans, instead of outsourcing their manufacturing abroad.
Estate Taxes on Inheritances
Estate tax currently only applies to the post-death transfer of wealth which exceeds $11.7 million. Some people lovingly call this the “death tax.” The current estate tax rate is 40%, but Biden has proposed raising it to 45%.
Tax Hikes on the Upper Class
Tax hikes on the wealth comes with no surprise as this is always the Democrat campaign push, following a republican presidency. Under the Trump tax plan, the tax rate on the top earners was 37%, which Biden is proposing to increase to 39.6% during his presidency.
The individuals who will be paying more in taxes under Biden’s plan are those who are making more than $400,000 per year, which is consistent with Biden’s campaign agenda. Business owners with a pass-through entity, such as a sole proprietorship or partnership, have to account for their business income on their personal tax returns each year, which will definitely affect the rate at which they pay as they creep over the $400,000 threshold.
Individual income taxes are a very simple form of taxation. If you make $X, you pay Y%. As shown earlier in this article, there are numerous more complex ways that Biden is considering raising taxes, which could affect small businesses.
Of Biden’s tax proposals, one that could potentially benefit your small business is his proposal to create tax credits for small businesses who offer their employees retirement plans. In the end, this is really just a predictive analysis on what Biden’s tax plan could be, based on his campaign agenda. The Biden administration has not said too much about tax policies, as their primary focus lies on COVID relief packages. As many Americans do, Biden is putting off doing his taxes, but he has to get around to doing them eventually.
