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The Current State of Relief and Tax Legislation

2020-09-14T17:22:38+00:00

It has been months since the Coronavirus Aid, Relief, and Economic Security (CARES) Act was signed into law, making significant changes to the tax code and creating administrative hurdles for employers, employees, and the unemployed. Since then, we have received piecemeal guidance from the government that both clarifies and confuses at the same time. And while everyone seems to agree that additional legislation is needed to help the country recover, the Congressional leaders have not been able to strike a compromise creating a legislative standstill.

The Latest Relief Bill

Senate Republicans recently introduced a new “skinny” relief bill, the Delivering Immediate Relief to America’s Families, Schools, and Small Businesses Act, that provides for an additional $300 per week in federal unemployment benefits while excluding a second round of stimulus payments and payroll tax relief. Additional Paycheck Protection Program (PPP) loan forgiveness is also included in the text of the bill. The bill went up for vote on Thursday and failed to pass.

Congressional Democrats criticized the bill as not providing enough relief given the current crisis the country is in. Back in May, the House passed the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act, which provided significantly more relief for Americans, including additional stimulus payments. The HEROES Act did not pass the Senate, and Congress has been fighting over new legislation since it failed.

Biden’s Proposed Tax Changes

While Congress has been unable to move forward on legislation, Presidential Candidate Joe Biden has been releasing information on future potential tax changes as part of his campaign. His proposals have caused a flurry of year-end planning among affluent taxpayers.

On the individual income tax side, Biden is proposing to return the top tax bracket to 39.6 percent, and to increase the top marginal income tax rate on capital gains to 39.6 percent for taxpayers earning more than $1 million annually. Biden is also proposing to eliminate the basis step-up that many assets receive at the death of the owner. Eliminating this basis step-up would be an administrative challenge since records that would support the basis calculation may no longer be available or may be inaccessible by the persons receiving the assets at death.

On the business tax side, Biden is proposing to increase the corporate tax rate from the current rate of 21 percent to 28 percent, and to institute a minimum tax on corporations that have profits of $100 million or more. For passthrough entities, Biden is proposing to phase out the qualified business income (QBI) deduction for income that exceeds $400,000. The current QBI deduction only contains a phaseout for businesses that meet the definition of a specified service trade or business.

Tax Extender Legislation

Amidst the debate over relief legislation and the upcoming election, there is little talk of extending tax provisions that are set to expire at the end of the year. While it is possible that some tax provisions may be included in future relief legislation or other needed legislation, there does not appear to be the same urgency for tax extenders as there has been in past years.

One industry pushing Congress to take action on expiring tax provisions is the brewery industry. Without Congressional action, the excise tax rate on craft alcoholic beverages will revert to $13.50. The excise tax is currently $2.70 for the first 100,000 proof gallons, $13.36 on the next 22,130,000 proof gallons, and $13.50 on anything above that. This graduated rate structure was put in place as part of 2017 tax reform, and was later extended through December 31, 2020.

Conclusion

As we move closer to the end of the 2020 tax year, we encourage you to reach out to your HBK tax advisor to discuss potential tax changes that may be coming, and what these changes may mean for you. We will continue to keep you updated as relevant information becomes available.

About the Author(s)

Amy is a Principal and the Chair of the Tax Advisory Group at HBK CPAs & Consultants. The Tax Advisory Group is a group of highly specialized professionals who provide tax training to our team members, oversee compliance with tax policies in order to mitigate risk to the firm, and provide tax planning and consulting services for our clients.

Amy specializes in estate, gift, trust, individual, and nonprofit taxation. She is skilled at researching complicated tax issues, consulting on complex estate plans, and providing guidance for our clients to ensure they are in compliance with their tax filing responsibilities.

Amy enjoys sharing her knowledge and passion for tax planning with clients and other professionals. She is a frequent speaker at bar association and estate planning council events, and has authored many articles discussing tax planning techniques and compliance issues.

Hill, Barth & King LLC has prepared this material for informational purposes only. Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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