Skip to main content

Potential Tax Law Changes Under New Biden Administration

By

With the change of Administration in Washington, it is likely significant tax law changes will be made in the coming year. The following highlights some of the potential changes in tax law we believe may be made to increase federal tax revenues as well as some potential actions that can be made in anticipation. 

Potential targets for tax increases as we see them

  • Increase in tax rates
  • Reduction or elimination of favorable capital gains and qualified dividend tax rates
  • Reduction or elimination of the qualified business income deduction
  • Reduction or elimination of immediate expensing of capital purchases
  • Reduction or elimination of business tax credits
  • Reduction or elimination of retirement savings incentives
  • Caps on deductible compensation of highly compensated employees

Strategies in anticipation of these concerns (actions to consider now, while benefits from the current tax law are still in place)

  • Sell assets eligible for favorable capital gains tax rates
  • Acquire investment and business property that is subject to favorable depreciation rules before potential law changes
  • In contradiction to the point above, delay acquiring investment and business property to save their write-offs for offsetting against higher tax rates
  • Delay selling business property that would generate a loss
  • While Congress would not want this to be the result of its actions, raise prices on products and services in anticipation of future higher tax rates

While these strategies may help to mitigate the negative consequences of future changes to tax law, there is a potential caveat. Typically in the past, mid-year law changes have been made effective on the date Congress first contemplates a change or at some future effective date. However Congress does have the ability to make retroactive law changes, for example back to January 1, 2021. 

Please contact us or your personal tax professional for more details or advice on specific responses that you might consider for your family or business.



Comments

Post a Comment

Popular posts from this blog

Rental of a Church Parsonage to a Non-Minister

By
Question: A church owns a parsonage, but the pastor does not use it as he owns his own home. The church rents the parsonage to a tenant other than a minister or employee of the church. Will the church be responsible for paying income tax on these monies as Unrelated Business Income (filing a Form 990-T) even if the money is used to carry on the business of the church? Answer: Whether the money is used for church purposes is irrelevant.  IRS Publication 598  states: "If an exempt organization regularly carries on a trade or business not substantially related to its exempt purpose, except that it provides funds to carry out that purpose, the organization is subject to tax on its income from that unrelated trade or business." Fortunately, in the case of rental income from real property, such income is "excluded in computing unrelated business taxable income" (Publication 598). Caution: see content below regarding debt-financed property.  However, a second concern not a
Post a Comment
Read more

Review: Form 1099 Payments to 501(c)(3) Organizations

By Anonymous
Question: A church rented space from another church last year. Should it request a completed Form W-9 and issue Form 1099-MISC? Answer: Payments from one 501(c)(3) organization to another 501(c)(3) organization are not subject to Form 1099-MISC reporting. The IRS Instructions for Form 1099-MISC state that "payments to a tax-exempt organization" are exempt from reporting a Form 1099-MISC.  The following are typical examples of payments of $600 or more by a church which are subject to reporting a Form 1099-MISC: Rent paid to an individual (non-corporation) Payments for services rendered by individuals who are not employees (e.g. janitorial service, facilities, snow removal, guest speakers) Support sent directly to missionaries
2 comments
Read more

Form 944 or 941 Filing for Churches

By Anonymous
Question:   A new church filed for an employer identification number (EIN) recently. It received notification from the IRS about the EIN, stating that the church must file Form 944 by the following January deadline. The church has no non-ministerial staff members. Since income tax withholding is elective by ministers and none of the pastors has elected to request non-mandatory withholding is the church required to file Form 944 annually? Also, a quarterly Form 941 (rather than an annual Form 944) is required of some employers. Which IRS form, if any, should be filed? Answer: According to IRS Section 1402(c) and 3121(c), ministers are not subject to mandatory income tax withholding. Unless one or more ministerial employees request non-mandatory withholding, church employers with only ministerial employees do not need to file Form 941 or Form 944.  The IRS  Ministers Audit Technique Guide  explains in further detail a minister's treatments for social security, Medicare tax, Fed
Post a Comment
Read more