With one of the most contentious elections in history behind us, President Joseph R. Biden, Jr. officially took office on January 20th. Under the new administration, high earning sales professionals are left wondering - how will the Biden presidency affect me financially? Based on his official campaign platform, past interviews and projections, there are a number of steps sales professionals can take to better prepare for potential changes to come.
Challenge #1: Expect Higher Taxes
Much of Biden’s tax plan focuses on raising taxes for high earners, corporations and capital gains. In fact, it’s estimated that approximately 80 percent of tax increases would affect the top one percent of income earners.1
For those earning over $400,000 annually, Biden is projected to raise taxes including individual income, capital gains and payroll taxes.2 Households with an adjusted gross income of $400,000 a year or less will likely see less dramatic tax changes, if any changes at all.
This shift could push many businesses and companies to rethink their compensation structures to help keep some of their high-earners from falling into this bracket. Things like income deferral, nonqualified deferral opportunities, or variable compensation packages may become more popular should we see this hike pass. Let's just say you may see your employers becoming increasingly creative in how they choose to compensate their sales professionals.
Challenge #2: Corporate Taxes May Be Raised
Under Biden’s proposed tax plan, corporate tax rates are expected to rise to 28 percent, up from the current 21 percent. Additionally, he may set a minimum tax of 15 percent on shareholders’ profits and increase the taxes on foreign earnings of companies overseas.3
Challenge #3: Real Estate Loopholes Could be Eliminated
If rumors that Biden may eliminate the Section 1031 like-kind exchange become true, real estate investors would lose the ability to utilize this common workaround for tax deferment.
These types of exchanges have taken place in the real estate industry for years and have been a part of the IRS code since 1921.4 Under current law, real estate investors can delay capital gains taxes when they sell properties and direct earnings into new investments - assuming they follow the IRS’s regulations as to what defines eligibility for Section 1031 exchanges.
Challenge #4: Elimination of Fossil Fuel Subsidies
For oil industry executives, the elimination of fossil fuel subsidies could affect your earnings. As of September 2020, this industry is said to be worth $14 trillion in assets.5
Biden is pushing to end U.S. fossil fuel subsidies worth billions of dollars a year in an effort to combat climate change and reach net-zero emissions within 30 years.6
Challenge #5: Reverses to the Tax Cuts and Jobs Act of 2017
The Tax Cut and Jobs Act of 2017 included several advantageous tax changes for high earners and business owners - including dropping corporate taxes from 35 percent to 21 percent.7 Biden is predicted to eliminate some aspects of the TCJA, likely reversing certain tax breaks for corporations and high-earners.
Challenge #6: Raising of Estate and Gift Taxes
Biden has been cited as saying he’d likely restore estate and gift taxes to pre-TCJA levels.2 Any eligible assets gifted above that amount would be likely taxed at a rate of 40 percent - unless the Biden administration changes it otherwise.8
To prepare for this possibility, it may be beneficial to sell portions of your estate to certain types of trusts. This can help preserve your estate as you prepare to pass it on to children or grandchildren.
While no one can predict the outcome of these proposed changes, it is never too early to start thinking about how you will handle them should they come to fruition. Now that Biden has taken office, it's likely we'll start seeing changes soon. Because sales professionals face unique financial risks that many other high-income earners do not, you'll want to be sure you ally with a financial professional who specializes in working with sales professionals like yourself. Together, you can create a plan and prepare for what may be coming down the line for you and your future.