Understanding Biden's Small Business Tax Plan

10 March 2021

With control of both the House and Senate in Democratic hands, President Biden will be able to get more of his tax agenda through Congress. Lets take a look at Biden’s tax proposals and how it can impact small businesses and business owners…

Look for President Biden to push for increased tax credits for employers, including small businesses, that hire a person with a disability. The expected credit would be worth up to $5,000 the first year and $2,500 if the disabled worker completes a second year of employment. There could also be up to $30,000 in tax credits available to businesses that improve the accessibility of their workplace.

Biden also has proposed creating tax credits for small businesses that offer retirement plans for their workers. If this proposal is to pass, it would increase the workforce of small businesses that offer retirement plans, preparing their employees for their future. Working with most small businesses, GMAC knows that it can be expensive to set up benefits for its employees, let alone the headache to get things in motion. The tax credit will incentivize small businesses to offer retirement plans, as well as help with the burdensome costs to set up.

Biden has also called for a 10% surtax on businesses that avoid U.S. taxes by sending jobs and manufacturing overseas and then sell goods back to Americans. Any deductions for expenses associated with sending jobs overseas would be eliminated, too. Biden also supports a new 10% "Made in America" tax credit for companies that invest in the U.S.

To help close the income gap, Biden wants to phase-out the 20% deduction for qualified business income (“QBI”) for upper-income taxpayers. The QBI deduction is a tax deduction that allows eligible self-employed and small-business owners to deduct up to 20% of their qualified business income on their taxes. In general, total taxable income in 2020 must be under $163,300 for single filers or $326,600 for joint filers to qualify. In 2021, the limits rise to $164,900 for single filers and $329,800 for joint filers. Biden wants to phase out the QBI deduction for files with taxable income over $400,000.

Lastly, Biden has many proposals that will impose taxes on large corporations (outside the scope of small businesses), yet, the dubbed “Amazon Tax” contains a provision that will raise the current corporate tax rate from 21% to 28% for all corporations. Not all corporations are large corporations, as there has been a significant switch in the last decade of small businesses transitioning from an LLC to a S Corp or C Corp structure. If a small business is structured as a Corporation, it may be weight the costs and benefits of certain legally structured business entities.

Just a short time into his presidency, President Biden plans to pursue aggressive tax proposals for all, including small businesses and individuals. Reach out to a GMAC tax professional to discuss how your business could benefit or be affected from new tax legislation.

Information sourced from taxfoundation.org/