How Might President Joe Biden’s Proposed Tax Plan Affect Professional Traders?

By: Montana Timpson

With the recent Democratic sweep of the Senate, President Joe Biden’s proposed tax plan is one step closer to becoming reality. With individual income, capital gains and corporate tax rates at the helm, Biden’s plan means big reform for current systems in place — some of which may hold big implications for professional traders.

Biden’s Plan for Professional Investors
Despite the lack of pen to paper in the form of a formal, finalized tax plan, President Biden has maintained a steadfast list of tax initiatives championed since his time on the campaign trail. For professional traders, key focus areas are as follows:

Individual Income Tax Rate
During his campaign, President Biden announced an incentive to increase the top individual income tax rate for taxable incomes above US$400,000 from 37% to 39.6%.

Capital Gains Rate
The President also proposed an initiative to raise the long-term capital gains tax rate to 39.6% for taxpayers at or near the US$1 million adjusted gross income hurdle. The additional net investment income tax (NIIT) of 3.8% would remain intact, as well, for a combined top federal rate of 43.4%.

Under President Biden’s plan, taxpayers whose income exceeds US$1 million would pay the same rate on investment income as applies to wages, at 39.6% — a stark contrast to current policy, where short-term capital gains are the only investment profit taxed as ordinary income, at a maximum of 37%.

Corporate Tax Rate
President Biden’s plan also suggests that corporate tax rates could increase from 21% to 28%. Corporations, additionally, would be subject to a 15% percent alternative minimum tax (AMT) on book profits of US$100 million or more.

Long-Term Effects for Professional Traders
Though difficult to predict or quantify, corporate tax rates have the potential to impact corporate stock valuations, even if the change is slight. Many professional traders will likely take close note, monitoring changes when and if the President’s tax plans solidify.

Though individual income tax rate effects are predominantly cut-and-dry, proposed capital gains rate changes might prompt investors to alter their decision-making, with traders opting to intentionally take gains as a onetime or ongoing strategy. Those at or near the US$1 million adjusted gross income (AGI) hurdle may choose to opportunistically realize long-term gains in years when they’re below the threshold and take a more aggressive tax-management position when they’re over the threshold — though any strategy of the sort would be at the discretion of individual traders’ analyses of their financial circumstances, investment objectives and risk tolerance.

For specifics on President Biden’s upcoming tax plans, and for a detailed outline of the tax filing season ahead, register now for Lightspeed’s live webinar with Robert A. Green, Tips for Professional Traders Getting Ready to File 2020 Tax Returns.

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For more information on a professional trading platform with Lightspeed, please call us at 1-888-577-3123, request a demo, or open an account.

Lightspeed Financial Services Group LLC does not hold itself as a tax expert. Regarding any tax related information contained within this writing and any other tax related items, please consult with your tax advisor.

Data, information, and material (“content”) are provided for informational and educational purposes only. This content neither is, nor should be construed as an offer, solicitation, or recommendation to buy or sell any securities or contracts. Any investment decisions made by the user through the use of such content are solely based on the users’ independent analyses taking into consideration your financial circumstances, investment objectives, and risk tolerance.

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