Biden Tax Plan: MileageWise Mileage Logs Can Become Invaluable

Sarasota, FL, April 27, 2021 --(PR.com)-- Under President Joe Biden’s new proposed tax plan tax rates for individuals whose income is $400,000 and higher would increase while corporations would also be subject to a new minimum tax on book income. The Social Security tax would be extended to higher income levels and the estate tax exemption would be reduced by approximately 50%. [1]

What does this mean for Small Businesses?

For example, a small business’s tax bill with a $1.5M gross revenue that pays out a total of $400,000 in wages to its employees and a net income of $800,000 to the owner would go up by $1112,150 / tax year. [1] The reason behind this is that the business will not receive the Qualified Business Income Deduction otherwise know as the QBID and also that under the new tax plan the tax rates will be higher.

What about the Self-Employed?

As of Apr 12, 2021, the average annual pay for someone who is Self Employed in the United States is $83,792 a year. The Biden plan would raise the top individual rate on ordinary income and net short-term capital gains back to 39.6% from 37%. [1]

Will Companies be the ones losing the most?

Biden proposed to increase the corporate income tax rate from 21% to 28%. The proposal also includes a 15% minimum tax on corporations with a global book income of $100 million or more. Under Biden’s plan, corporations would pay at least $2 trillion more in taxes than they do now. [1]

How to prepare for the changes

401(k): Employees can reallocate money when preparing their taxes. Less taxable income means less tax, and 401(k)s are a popular way to reduce tax bills. A 401(k) plan is an employer-sponsored defined-contribution pension account. Employee funding comes directly off their paycheck and may be matched by the employer.

The IRS will not tax what is diverted directly from a paycheck into a 401(k) Form. For 2020 and 2021, this money can add up to $19,500 per year per account. [2]

Earned Income Tax Credit (EITC): Depending on the amount of an income (i.e. if it is less than $57,000 / year), marital status, and how many children a taxpayer has, they might qualify for a tax credit of up to almost $7,000 in 2020 and 2021. [3]

Tax Deductions: Employees, Employers, and Entrepreneurs alike can benefit from tax deductions. The single biggest return on taxes out of all the Business tax deductions out there is on Business Mileage. Taxpayers can claim an average of $12,000 on Business Mileage, and they can even claim their previous 3 years' worth of Business Mileage Deductions in case they haven’t done so as of yet. [4]

There are two ways for tracking Business Mileage:

I. Pen and Paper: When reconstructing a mileage log retrospectively, there are numerous fixed details one must pay attention to. This requires a lot of work and energy and it is fairly easy to leave mistakes in the mileage log.

II. Mileage tracker apps and Mileage logging Software Solutions: Mileage tracker apps are useful for those who are prepared for the tax season and are going to track their mileage ongoing. From continuously and accurately tracked miles it is easy to generate monthly Mileage logs in a format that complies with the guidelines of the IRS. For those who have not tracked their miles, or who do not have sufficient Mileage logs, there are software solutions available for retrospective mileage reconstruction, such as MileageWise, which focuses on producing IRS-Proof mileage logs. These software solutions were purposefully developed in response to the market's need for retrospective mileage reconstruction.

[1] https://joebiden.com/two-tax-policies/
[2] https://www.irs.gov/retirement-plans/401k-plans
[3] https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit-eitc
[4] https://www.irs.gov/credits-deductions-for-individuals