August 20, 2020 Connor Steens

STRATEGIZE FOR THE DEMOCRATS’ TAX PLAN

BY CONNOR STEENS

Democrat Tax Policy under Joe Biden

The Democrats have formally nominated Joe Biden as their presidential candidate for the upcoming US Elections. Joe Biden’s winning stocks continue to rise, after nominating Kamal Harris as his vice-presidential candidate. The Democrats’ tax policy propositions can affect you both as an individual and a business. Further along, it may affect you if you are going to pass on any accumulated wealth to your estate beneficiaries. It will also affect beneficiaries that receive any inherited wealth from parents and/or grandparents.

Joe Biden has also announced plans to undo some of the tax regulations that were introduced by the Trump Administration through the Tax Cuts and Jobs Act of 2017. Most strikingly the plan could bring changes around the corporate tax rate and Gifts and Estate taxes. Let’s have a look at some of the key points in Joe Biden’s proposed tax policy.

  • Biden’s tax plan proposes an increased corporate tax rate of 28%, up from 21%, for business income. It will also impose a 15% minimum tax rate on any company’s book earnings.
  • It proposes a 21% corporate tax rate for foreign subsidiaries of US firms.
  • Biden vows to impose a tax rate of 39.6%, up from the current 37%, for individual income. The taxable income is set at a mark of $400,000.
  • The plan also suggests taxing the dividend and capital gains income at the same rate as the ordinary income tax rate for any income above $1 million.
  • The plan vows to tax the Gifts and Estate tax exemption at a “historical norm”, under Obama this was $5 Million, under Biden it will be $3.5 Million. It is currently set at $11.5 Million per individual.

Joe Biden’s proposed tax plan vows to collect an additional $4.0 trillion in taxes by 2040. A staggering 90% of these collections would come from wealthy individuals and businesses. The plan will likely impact the individuals resting on capital gains or investments. Overall, the Democratic tax plan suggests a significantly increased tax on your wealth, both as an individual and business.

Avoiding the sudden tax implications and loss of valuable earnings would mean implementing a plan ahead of time. Those with a taxable income higher than $400,000 could see their income tax swell in the near future. Individuals earning more than this can expect to be taxed at the same rate and businesses are set to be taxed at a rate 33% higher than previously. With the additional taxes on unrealized gains at death, asset protection becomes increasingly difficult for anticipated estate beneficiaries with the proposed escalation of Gift and Estate taxes.

Asset protection has become a growing concern in the US not only for businesses but for high net worth individuals as well.

Some key points to consider:

  • Asset Protection: Placing your valuable assets under the Southpac Trust umbrella can create an additional layer of protection for you. Any assets under your name can be become the victim of a lawsuit.
  • The Future of Income Tax: Expect to see the tax implications firstly on your personal income, then on any business income and finally on any investments and capital gains.
  • Estate Tax Escalation: Gift tax exemptions will drop to less than half of the current value and this will significantly impact your tax bill and that of your heirs.

A well structured offshore trust in a jurisdiction such as the Cook Islands or Nevis can help you both as an individual and a business with your wealth management. Apart from improved asset protection and security, offshore trusts can help you with increased foreign investment opportunities that would normally require complex legal requirements in the US. Regardless of the upcoming election results, tax policies are subject to change anytime. Even the Trump administered tax cut and jobs act will expire in 2025. Asset management is a long-term plan, albeit, a plan that can be started today.

Contact Us to get started.

Connor Steens

Connor Steens works as an Analyst at Southpac Group. Connor has worked closely with Guy on investment an banking relationships. Connor currently oversees and monitors current marketing analytics, exposure and direction, content creation and market presence.
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