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How a Biden Tax Plan Could Impact You

Updated: Oct 9, 2020

As the presidential election nears, many families are wondering what the next administration could mean for race relations, healthcare, and how to defeat the COVID-19 Pandemic. No matter what your points of view are, you can only make a difference if you vote.

As a financial planning firm, our job is to educate our clients and prospective clients about what a future administration may also mean for your pocketbook. So, let us take a few minutes to talk about taxes.

The Trump administration recently enacted tax reform and while many of these provisions are set to expire after 2025, tax savvy families will begin to ponder what a Democratic Congress could mean for their investments and take-home pay.

The purpose of this blog is to be objective and to point out some of the changes that might occur should the Democrats take over not only the presidency, but also the House and Senate.

Remember, major tax reform requires all parts of government to make material change and even then, tax reform is divisive, and liberals and moderates are not likely to agree on every potential change. Without further ado, here are some areas of our tax system that could change.


While taxes will increase, the current Biden proposal has promised to not increase taxes on anyone earning less than $400,000 (whether this means individuals or couples is not yet clear).

The combination of tax rate increases and increases in other areas of the tax code could lead to those earning over $400,000 see their after-tax income drop by up to 18%. The chart below from shows the affect on tax brackets alone.

Other income tax changes may include:

How can you take advantage of these potential increases?

In a world where tax rates are lower today than in the future, Roth Conversions could be a powerful strategy to convert pre-tax assets to tax-free at a lower tax rate today than in the future. Working with your financial planner and CPA could save you hundreds of thousands of dollars during your lifetime!


One of the biggest surprises is a proposal to eliminate tax deductions for contributions to 401(k)’s, IRA’s and 403(b) retirement plans and replace the deduction with a “credit.” While details are vague, the goal of this change is the “equalize” benefits across the income scale.

My personal opinion is that in a time where we have a true retirement crisis in our country, I hope that any change is designed to encourage more savings so that working families can support a family while saving for their future in a meaningful way.

I worry that complexity will only further confuse families and discourage additional savings. Stay tuned as we monitor any potential changes here.


Lower- and Middle-income families may be able to benefit from expanded tax credits for some of the following areas:

  • Increased child tax credit for children under 17 and an even higher credit for children under 6.

  • Expanded childcare credit.

  • First-time homebuyer credit.

  • Caregiver credit.

Admittedly I am intrigued by these credits. I believe they address several areas of struggle for many families.

  • Young working families struggle with the increasing costs of childcare.

  • First-time homebuyers, while fortunate to have historically low-interest rates are also burdened by increased student loan debts.

  • Finally, adults who are nearing retirement are faced with the financial and emotional challenge of caring for aging parents.

The financial struggles are real for middle-class families. While these tax credits won’t solve the problems, it is encouraging to see the focus on middle America.


For years Democrats have proposed to increase capital gains and under the Biden plan, this is still the case. Fortunately for many, the threshold for increased capital gains is not $400,000, but would be $1,000,000 of income.

Should this income threshold change, where you invest will become more important. Strategies could include:

  • Utilizing ETF’s instead of Mutual Funds.

  • Increased use of Municipal bonds

  • Utilizing plain-vanilla annuities for tax deferral


The Biden tax plan would also increase revenue by increasing other taxes that often impact the wealthy but can impact ordinary Americans. These include:

  • Elimination of the “step-up” in basis of assets at death.

  • Reduced estate and gift tax exclusion.


While it is helpful to envision what the future may hold, there is no need to take immediate action. After all, tax reform would most likely require the Democrats to control not only the Presidency but also the House and Senate. Even if this does occur, history shows that they are likely to maintain this power only until the mid-term elections.

Would the Democrats focus on a bitter tax reform fight with their time in control or would they look to more bi-partisan solutions to heal our country?

No one knows what the future holds. Personally, I hope we can begin to come together as a country and heal our open wounds by finding ways to work together. Wishful thinking I’m sure.


Financial Planning is not just about managing investment portfolios. More importantly it is about having someone you trust to guide you when the unexpected occurs and to make sure your family has a trusted resource to rely on.

At Abel Financial Management, we are local, family oriented and truly independent financial planners with a mission to help you make smart decisions with your money. If you or someone you know are faced with decisions like these, we invite you to come have a conversation with us.

Steve is a CERTIFIED FINANCIAL PLANNERTM and Partner at Abel-Financial Management. He can be reached at or at 410-307-1202.

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