After what seemed to be an extraordinarily lengthy election cycle, we finally have clarity on who controls the branches of government. Following the inauguration of President Joe Biden and recent Senate run-off races in Georgia, Democrats now control the White House, and both Chambers of Congress—which ultimately increases the likelihood of federal tax hikes. Between Biden’s agenda outlined in his proposed tax and stimulus plans and the current deficit because of the pandemic, these revenue-raising measures are almost inevitable.

But with that political certainty comes income and estate tax planning uncertainty. Although none of us have a crystal ball, there are a few tax changes that will likely become law:

  • At the top of the list is an increase in the highest marginal federal income rate from 37% to 39.6% for married couples with incomes over $400,000. That was the top rate during much of the Obama administration. The same rate, 39.6%, could be applied to capital gains (top capital gains rate is currently 23.8%) and qualified dividends for those with incomes over $1 million.
  • Additionally, Biden may increase the estate tax. The changes could include reducing the current federal exemption from $11.70 million to approximately $3.5 million to $5 million and push the top tax rate from 40% to 45%.

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