This Tax Proposal Will Hurt Your Wallet (Joe Biden)

There are significant changes to tax policies on the table aimed at you. The top individual income tax rate will move up to 39.6%. If they have state income tax, there goes half of their earned income. The NIIT is a 3.8% surtax; Biden wants that to go to 5%. Every bit adds to the tax bill. Don't forget there's a Medicare surtax. President Biden says this needs to go to 5% as well. These taxes are getting out of control. This is huge, folks, because Roth IRA, that's our tax-free environment, but President Biden says that needs to go away. Now if similar leadership takes office in November, you can rest assured we will see these things again.

[Music]

Welcome to another edition of We're Talking Money. I'm Phil Clark, and today we are going to talk about the latest tax proposal from President Joe Biden. There are significant changes to tax policies on the table, and they're aimed at you.

So President Biden's new tax policy for 2025, it outlines a lot of key priorities for what else, raising more tax revenue. Our country has more debt than it's ever had, $ 35 trillion and growing, and every 12 months our country spends 1 and a half to say $ 1.7 trillion more than it brings in through tax receipts. Basically Biden is asking Americans to fund a massive tax program, things like the child tax credit, earned income tax credit and the premium tax credit, just to name a few.

We still have a divided Congress, and because of that it's very unlikely Biden's proposal will be passed, at least not all of it will be passed. So let's break down these proposed tax changes. Will they affect you? I'd love to hear your thoughts.

Number one, the top individual income tax rate will move up to 39.6% if they're earning over $400,000 per year. If they have state income tax of say five, 6, 8, 10%, there goes half of their earned income.

Number two, the net investment income tax, or NIIT. Now we did a video on this a few months ago; check it out if you're interested. The NIIT is a 3.8% surtax. Biden wants that to go to 5%. This is for earners above $400,000 per year. Every bit adds to the tax bill. And don't forget there's a Medicare surtax that also sits at 3.8%. President Biden says this needs to go to 5% as well.

Number three, qualified dividends and long-term capital gains. Both of these will be ordinary income taxable. No longer will they be taxed as capital gains, which are a much more favorable tax rate. This is for earners who go above $1 million per year. You might be saying, that's not going to affect me, but a lot of people in the United States make a million dollar or more per year.

Additionally, here comes that NIIT tax that moves from 3.8 to 5% per Biden's proposal. This means now they could be paying 40% on qualified dividends or long-term gains plus an additional 5%. So if it's ordinary income tax for this earner of say 39.6% plus another five, that's before state income tax. These taxes are getting out of control per this new proposal.

Number four, Roth IRA conversions for high income taxpayers and backdoor Roth conversions, all of this would be eliminated. This is huge, folks, because Roth IRA, as you know, that's our tax-free environment, and if we can move monies into that, which we're able to do today, that is a huge advantage. But President Biden says that needs to go away. This one we have to hope does not get passed.

And number five, I threw this one in just for fun. Most of you listening probably are not at a net worth of $100 million, but if you are, President Biden believes that you ought to have an extra 25% tax just for you. So if you've made a lot of money, if you're a wealthy family or a wealthy individual, President Biden says welcome to the high income party. He's going to give you a special tax, 25%.

And number six, and by no means is this everything from the proposal, but these six are the ones that I felt like are most appropriate for today's show. Number six, President Biden says that like-kind exchanges no longer get the transfer of capital gains tax to the next property. In other words, a 1031 exchange, you can just say goodbye to that great tax benefit. Now if you sell a property or trade a property, you're going to pay the capital gains right then and there.

These proposed tax changes could have significant implications for wealth transfer and taxation. In my opinion, the likelihood of these changes passing is pretty low, but they signal the administration's priorities. Unless we cut programs, we've got to have more tax dollars. Now if similar leadership takes office in November, if President Biden is reelected, you can rest assured we will see these things again. They could become law, and that could real trouble.

It's these kinds of policies that illuminate blind spots, and they represent a real need to consider how tax planning could affect your situation. If you don't understand these things, or if you don't have someone in your corner helping you make good decisions, you're one of the very people that can fall prey to these kinds of changes that rarely get the attention they deserve.

So how should you be preparing for Biden's restrictive policies and the sunsetting of the 2017 Tax Cuts and Jobs Act? Number one is Roth IRA conversions for tax-free growth and distribution potential. If you're likely to be affected by the proposed tax increases, converting from traditional IRAs to Roth IRAs could be advantageous. You need to do that now while rates are still reasonably low.

Number two, it's bunching charitable deductions. Now if you enjoy giving and you think your tax rate is going up, you might want to consider delaying some of your gifts today and then bunching them in years to come so that you can itemize and take advantage of much greater tax savings.

Number three, optimizing the stepped-up basis at death. If you have a grantor trust, you might want to consider adding high cost basis assets to the trust and removing low cost basis assets from your trust.

And number four, implementing tax-smart investment strategies. Investors of every income level can take advantage of some of these strategies, things like deferring taxes, reducing taxes, tax-smart asset allocation and even things like tax loss harvesting. These can benefit anyone when it comes to saving taxes.

As I said, I don't think Biden's proposal will pass this time, but that doesn't mean we won't see it again. A lot of that depends on who gets elected in November. Regardless of when the changes happen, now is a perfect time to reassess your financial house.

Now I hope this episode of We're Talking Money has inspired you to stay focused on your long-term goals and to consider talking with a financial professional who can help you navigate the ever-changing tax landscape and these proposed changes from President Biden. If you like this content, I hope you'll subscribe to our channel, give us a thumbs up and ring that bell so you never miss one of our curated episodes that are designed specifically to help you make better financial decisions. I'll see you next time on We're Talking Money.

The sunsetting of the 2017 Jobs Act and tax cuts. Tax cuts and jobs Act, and the sunsetting of the Jobs Act, jobs tax cuts, tax cuts, and the sunsetting of the 2017 Jobs Act and Tax Cuts Act. Tax Cuts and Jobs Act. Tax Cuts and Jobs Act. Tax Cuts and Jobs Act. I just can't get that. The 2017 Jobs Act and tax cuts, which sunsets in 2026. Tax Cuts and Jobs Act. Of the 2017 Jobs Act and the 2026 sunsetting of the 2017. 2026 sunset for the 2017. I don't like that; that doesn't sound. Tax Cuts and Jobs Act. Tax Cuts and Jobs Act. Tax Cuts and Jobs Act. Job cuts and tax. Tax, tax, tax, tax, tax, tax.