As a small business owner, you have spent countless days worrying about your business as you grow it from the ground up. You’ve also likely faced the devastating effects of COVID-19 for almost two years now.
As you focus your time and energy on growing your revenues, growing a team, and working on your personal goals, the current proposed Biden tax plan may be far from your mind.
However, the plan is a response to the damaging effects of the pandemic, particularly on families and small businesses. The key purpose of the plan is to impose high taxes on wealthy individuals and large firms to level the playing field for small businesses. It’s also a form of poverty reduction program which may benefit your family.
Admittedly, the proposed changes can be tough to navigate, especially as a small business owner. Here at McMill CPAs & Advisors, we’re here to help small business owners throughout Northeast Nebraska understand exactly how the proposed changes could impact them.
What’s Included in the Proposed Biden Tax Plan?
Biden’s proposed tax plan entails tax proposals under the American Jobs Plan and the American Families Plan. In addition, the administration is involved in making changes to individual taxes that affect income-earning individuals.
The American Jobs Plan
This is a proposal by President Biden put forward on March 31, 2021, aiming to allocate $2.3 trillion towards the country’s physical infrastructure and job opportunities for the next 8 years. The effect is an increase in taxes on corporate profits involving a higher corporate income tax.
The proposed major changes are as follows:
- C corporations will now be subject to a statutory tax rate increase from 21% to 28%.
- Companies reporting over $2 billion in net income will be subject to a 15% minimum tax on corporate book income.
- Multinational corporations will face an increase in taxes from 10.5% to 21%.
- Removal of special tax treatments for fossil fuel companies.
- Minimizing tax loopholes that U.S. corporations take advantage of.
- Reforming the foreign-derived intangible income deduction (FDII) to limit tax breaks enjoyed by corporations and redirecting investments to R&D incentives.
The breakdown of the plan’s trillions will have an encompassing impact on America’s economy. This includes transport infrastructure ($621 billion), community infrastructure ($689 billion), R&D ($580 billion), and eldercare ($400 billion).
This is part of Biden’s promotion of his “Build Back Better” program. So, for the next decade, C corporations are expected to brace themselves for an increase in corporate taxes.
American Families Plan
This plan is the third proposal which was announced on April 28, 2021, with American families in mind and will cost $1.8 trillion. It covers three aspects; education, health care, and child care. However, this plan targets businesses not operating in the corporate world. It intends to rely on taxes from wealthy individuals.
The main benefits of the plan will be affordable education, tax credits for workers and families, and job security for families.
The proposed changes are:
- The increased individual tax rate on wealthy individuals from 37% to 39.6%.
- Increase in capital gains tax rate from 20% to 39.6% on families making over $1 million.
- An imposed net investment income tax on earnings of over $400,000
These changes largely target high-income individuals. However, there is a rise in concern among small businesses.
Individual Income Tax Proposals
The Biden administration aims at heavily taxing high-income persons through the proposed hike of 39.6% for both capital gains tax and individual income tax rates. Currently, the top tax rate for individuals starts from $523,601 and $628,301 for married taxpayers filing jointly.
However, businesses have shared concerns over how it impacts their operations, including individuals and small businesses. Courtney Titus Brooks, a senior manager at the National Federation of Independent Business points out that small business owners might be constrained in expanding their workforce and operations.
How Does the Plan Affect Nebraska?
Despite some raised alarm over the Biden tax plan, small businesses are likely bound to benefit. But specifically, how will it impact your business in Nebraska?
In Nebraska, 99.1% of businesses in the entire state are considered small businesses. This means small businesses drive Nebraska’s economy and the expected benefits from the tax plan will further elevate their growth.
How Might Nebraska Businesses Benefit?
1. The American Jobs Plan gives hope to Nebraska families and small businesses as workers, communities, and infrastructure will be given priority. This is a promising rescue plan to cushion the state from the effects of Covid-19.
Any small business that experienced significant revenue decline and loss of workers due to COVID will be given a new lease of hope as the government will be focusing on taxing the highest-income individuals and C corporations.
2. The hefty proposed taxing of high-income individuals and corporations will help sustain the program and enable small businesses to operate in a stable environment. This will help you as a small business owner to increase investments in your operations and even hire more workers. In turn, Nebraska’s economy is set to grow.
3. As a small business owner, your business goals are likely tied to your personal finance goals. You may aspire to leave a legacy for your family. Biden promises to protect family-owned businesses and farms from capital gains tax hikes. This bill proposes that no taxes will be paid when your heirs take over the business. With the proposed tax plan, the government wants to elevate families and businesses over the highest-income individuals.
What Does This Mean for Small and Medium-Sized Businesses?
The proposed tax plan should be viewed as an opportunity for small and medium-sized entities aiming to scale up their businesses. The main promise of the plan is to protect families, workers, and small businesses from tax effects.
One of the advantages is $998 billion in refundable tax credits for low-income to middle-income families. This means more money will trickle to the grassroots level, enabling your businesses to gain leverage over constant market changes.
Going forward, small and medium-sized businesses should expect significant impacts from the tax proposals. Amid changing legislation, now is the best time to partner with a CPA who can stay on top of these changes and act proactively on your behalf versus reacting to certain changes when it’s too late.
The proposed Biden tax plan is bound to cause a wave of impacts on individuals and businesses, including small businesses across the United States.
If you run a small business in Nebraska, you’re right to have worries over how your business will perform in the next five years. This can cause you to have doubts about managing your business’ income, bills, emergencies, employees, and your retirement plans.
You are also probably overwhelmed in keeping track of constant changes in tax laws and policies. The proposed changes according to the Biden tax plan will require being proactive when they become implemented. This calls for your attention to work with a partner that cares about your vision and plans for your business.
McMill CPAs & Advisors has experienced CPAs and tax professionals who can competently answer any questions you have about the proposed Biden tax plan and the impacts it has on your Northeast Nebraska business. We offer personalized consultation and tax services to help your business manage tax planning and achieve financial success. Please contact us today.