3 tax-planning lessons from Joe Biden’s tax returns

Former Vice President Joe Biden takes the stage for the second night of the first Democratic presidential debate on June 27, 2019 in Miami, Florida.

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If you missed out on a deduction for state and local taxes on your 2018 return, you’re not alone: Former vice president Joe Biden and his wife lost a large chunk of this tax break, too.

The 2020 presidential hopeful released tax returns for 2016, 2017 and 2018 last week. He filed jointly with his wife Jill T. Biden, a teacher at Northern Virginia Community College.

The Bidens reported adjusted gross income of $4.58 million on their 2018 return and paid $1.53 million in taxes that year.

That’s down from $11 million in AGI in 2017, and $3.74 million in total taxes paid.

In comparison, their AGI was a more modest $396,456 in 2016.

In 2017, Biden reported an additional salary of $12,963 — money he was paid during the first three weeks of that year when he was still an employee of the U.S. government. It appears he did not get a W-2 reflecting the amount paid and taxes withheld, according to the return.

The updated 2017 return reflects this change.

The couple also amended their 2018 return, dropping a deduction for a $25,000 contribution to Walking with the Wounded, a charity group in the United Kingdom.

The original return mistakenly identified the group as a Section 501(c)(3) nonprofit, according to the amended return.

Here are a few takeaways from the Bidens’ tax filings.

SALT cuts

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This year marked the first time taxpayers submitted their returns under the new Tax Cuts and Jobs Act.

This overhaul of the tax code went into effect in 2018, roughly doubling the standard deduction to $12,000 for single taxpayers and $24,000 for married-filing jointly, and doing away with personal exemptions.

It also made changes to a number of itemized deductions, including a $10,000 cap on the deduction you can claim for state and local property taxes paid.

In 2018, the Bidens paid a total of $361,966 in state and local taxes, but they were only able to deduct $10,000 of it.

“He lost a big chunk of the deduction for SALT,” said Tim Steffen, CPA and director of advanced planning at Robert W. Baird & Co.

In all, the Bidens had $314,351 in itemized deductions last year, including a deduction for a $275,796 charitable contribution by cash or check.

Lower tax brackets

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Here’s a potential missed opportunity: deferring income into a future year to save on taxes.

Taxpayers who would otherwise receive money toward the end of the year can opt to push that income to the new year. This way, you defer both the cash received and the tax payment.

It’s a strategy that works for small businesses that can push back the receipt of income, as well as workers who get hefty-year end bonuses.

The Tax Cuts and Jobs Act made this an even more attractive move, as it reduced individual income tax rates starting in 2018.

The Bidens had more than $11 million in AGI in 2017, when the top individual income tax bracket was 39.6%. Meanwhile, they had $4.6 million in AGI in 2018 – when the top rate was 37%.

Bumping some of that 2017 income into the following year might have helped trim their tax bill.

“It doesn’t look like the Bidens did a lot of income shifting to get income out of 2017 and into 2018 when it would be taxed at a lower rate,” said Steffen.

Household employees

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The former vice president and his wife missed a potential tax landmine. The two reported wages paid to a household employee, instead of paying him or her under the table.

Whether you have a nanny, cook or housekeeper, and you paid that person at least $2,100 in 2018, then you’re responsible for reporting and paying Social Security and Medicare taxes.

If you paid wages of at least $1,000 in any quarter of 2018, you’re also responsible for federal unemployment taxes of 6%.

You must also give that worker a Form W-2, reporting wages and taxes withheld by Jan. 31 of the following year.

Last year, the Bidens reported $18,325 paid in cash wages to a household worker.

Failure to pay the so-called “nanny tax” carries penalties and back taxes for employers. This is a problem that’s plagued political hopefuls in the past.

“I’d bet this is one of the most underreported items on a typical tax return,” said Jeffrey Levine, CPA and CEO of BluePrint Wealth Alliance.

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