A New Presidential Administration Will Soon Be Upon Us. What Tax Changes Can We Expect???

Bruce - Your Host at The Tax Nook November 23, 2016 No Comments

Effects on Businesses

What do the election results mean to your business? Your taxes? There’s no one answer to that. As far as the effect on your business, with small exceptions, it should be positive. Most experts believe they’ll be a move away from regulations that have negatively impacted many businesses. But the actual impact will vary widely. The plumber working on his own faces regulation on the local, county, and town level. Federal rules probably have little, if any, effect. Some health care businesses will do much better, as evidenced by the surge in prices for drug companies. Some will do worse as many hospitals believe the demise of Obamacare will hurt their business.

It can get far more complicated. Will home prices rise? It depends. If immigration (legal and illegal) is severely restricted, new home prices will rise because smaller contractors often use immigrant labor. Higher interest rates, which some professionals predict, would also have an effect on home prices. On the other hand, reduced regulation of banks could ease lending rules which could offset higher interest rates. And a lower tax rate would increase available income.

From a business standpoint, the best advice is to analyze the situation, listen to any trade organizations, and don’t overreact in either direction. While it seems fairly certain Obamacare will be attacked rather quickly, many other changes could take much more time.

Effect on Taxes

What will happen to taxes? Some changes are fairly predictable, some aren’t. Here’s my brief rundown of the most predictable ones. These are based on President-Elect Trump’s proposals.

Individual Tax Rates: They’re heading lower, at least the top rates. The proposed rates are 12 percent, 25% and 33%. The lowest rate would apply to the first $75,300 for those married folks filing jointly ($37,650 for single); 25% on taxable income up to $231,450 ($190,150 single). Everything above those levels would be taxed at 33%. The 3.8% tax on net investment income would be eliminated. The head-of-household filing status would be eliminated.

Note – The income breakpoints indicated are based on a House of Representatives proposal.

Capital Gains: The capital gain rates might be unchanged, with the exception of eliminating the 3.8% tax on investment income. The same rates would apply to qualified dividends.

Deductions: The standard deduction would increase to $30,000 for married filing jointly ($15,000 for single). There would be a $200,000/$100,000 cap on itemized deductions. No personal exemptions.

Childcare: An above the line deduction for child and elder care expenses limited by a taxpayer’s income.

Alternative Minimum Tax: Trump’s proposal would be to eliminate the tax.

Corporate Tax Rates: The corporate rate would drop to 15% under Trump’s proposal. That may be unrealistically low. Passthrough entities would be taxed at 15%, but taxed again on distributions. Good news for businesses that retain a substantial share of their income.

Section 179 Expensing: The limitation would increase from $500,000 to $1 million per year.

Estate Taxes: The estate tax would be eliminated. But so could the stepped up basis on assets at death, at least on assets above the current estate tax threshold.

Those are the highlights, the ones that affect the most taxpayers, and the ones that have the best prospect of passing.

But the devil is in the details. Here are some points to consider.

Congress: The Republicans do have a majority in both houses, but the Senate for one, is thin and not all members vote the party line. That means some compromise might be necessary. In addition, the Trump plan isn’t the only one. The House has its own plan. And many individual members have their own thoughts.

Paying for the Cuts: The cuts have to be paid for in some way. Some estimates put the 10-year deficit increase at $9 trillion. There is some sleight-of-hand that can be used to ignore at least part of the problem currently, but it’ll show up quickly. That’s happened in the past. The economy will have to grow faster than it has in some time to solve the problem. If not, tax rates could creep higher after the initial cuts. That’s happened in the past. It might be avoided with significant spending cuts, but that approach has proved elusive in the past. And at some point spending cuts will be felt at the voting booth.

Fewer People will Itemize: That’s definitely true. And for a number of taxpayers, taxes will be simpler. But having three tax rates rather than seven won’t help much. Most tax returns are prepared by professionals on computer. Few people actually use the tax tables to compute their tax liability. And for many taxpayers, itemizing isn’t the problem. It’s dealing with capital gains, education expenses, rental properties, a sole proprietorship, etc. and that will continue to cause headaches.

State Taxes: Most states use federal taxable income as a starting basis for their tax. Many states use the same itemized deductions, some with modifications. Unless they change their approach, you still could be itemizing.

Retirement Plans: Look for additional benefits for contributions to retirement plans.

Other Changes: It’s more than likely that Trump’s proposals will be incorporated into a host of other changes. Where this will end up is hard to predict. Overall tax liabilities are almost sure to be lower, but deductions for individuals reduced. There could be cutbacks in certain credits and other deductions for particular industries or taxpayer benefits. Thus, some taxpayers may benefit less than others. Once more information is available, you should discuss your situation with your tax advisor.

Timing of Changes: Clearly nothing will happen in 2016 to affect 2016 returns. Any changes will be in 2017 although the actual timing is difficult to predict. At this point many experts predict early attention to taxes, but it may be far enough along in the year that some of the changes will not be retroactive to the beginning of 2017.

Tax Planning: The safe bet now is to defer income into 2017 and take deductions this year. For a more detailed discussion of tax planning and to see how any upcoming tax changes will affect you, contact Solid Tax Solutions (SolidTaxSolutions.com). We can be reached, all year-long, at (845) 344-1040.

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Bruce – Your Host at The Tax Nook

Our Firm’s Website: SolidTaxSolutions.com (or just click on the icon on right sidebar of this page).

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Categories: Business, Income Tax, Taxes in the News Tags: Donald J. Trump, Donald Trump, Donald Trump and Obamacare, Donald Trump and Taxes, Donald Trump's Tax Proposals, New Presidential Administration, New Tax Laws, Tax Changes, Tax Changes in 2017

Considerations for Small Business Owners in Voting for a New U.S. President.

Bruce - Your Host at The Tax Nook October 14, 2016 1 Comment

After a long, contentious, and heavily covered race to the U.S. presidency, the 2016 campaign cycle is coming to end in only a few weeks. Chances are you’ve been overloaded with news and commentary and—whichever candidate you support—you’ll be somewhat relieved after the results are announced on November 8th.

But that doesn’t mean you should tune out until then. Between the candidates’ platforms, tax plans, and stances on topics such as healthcare, immigration, and consumer protection, there are important issues at stake that may directly affect your business and industry.

Which Election Issues Matter Most to Entrepreneurs?

As a business owner, you have several political agenda items to consider before you vote on Election Day:

What Will the Proposed Healthcare Reform Mean for Your Small Business?

The Affordable Care Act, signed into law in 2010 and commonly referred to as “Obamacare,” made healthcare a focal point of political discourse—in large part because of its effects on America’s businesses. Some business owners support the Affordable Care Act for providing employees with mandatory insurance coverage, while others complain that the law places an excessive financial burden on employers.

Have You Analyzed Each Candidate’s Tax Plan?

Although virtually every presidential candidate in recent history has pledged to make taxes more advantageous to small businesses, tax plans vary wildly by administration when it comes down to the details. A business owner would be wise to scrutinize each candidate’s proposals to determine:

The tax breaks and incentives for business owners
Which types of taxes will be increased
Whether income brackets and business categories are changing, and if so, to what extent

How Will Federal Regulations Impact Your Industry?

From safeguarding consumer privacy to providing accommodations for disabled employees, companies are subject to all kinds of federal regulations, though some industries are more regulated than others. The two major parties fundamentally disagree about the scope and authority of these regulations and the agencies in charge.

The Consumer Financial Protection Bureau (CFPB), which lawmakers established in 2010 as part of the Dodd–Frank Wall Street Reform and Consumer Protection Act. Republicans believe the CFPB has too much unchecked power over financial institutions, while Democrats argue for the agency’s necessity and seek to sustain it—if not expand its influence.

Where Do You Stand With Minimum Wage?

Several states have recently passed legislation increasing state minimum wage, and the subject is a hotly debated one in Washington as well. A federal minimum wage hike is not simply an issue of cost versus savings, but large-scale economics and government intervention.

Some business owners advocate for raising the minimum wage, citing that better pay increases productivity and reduces turnover. Others contend that a $12–15 minimum wage would put their organizations out of business or cause them to lose their competitive edge domestically and globally.

What About Federal Loan Availability for Rising Entrepreneurs?

Do you believe it should be easier for business owners to borrow credit? A “yes” or “no” answer places you firmly on one side or the other of the political spectrum. The parties’ stances on banking regulations and Wall Street reform tell you a lot about what the availability of loans under their administrations would look like, but there’s more to the story than that.

Aside from the candidates’ promises to promote small business growth, the various outcomes of the election could have significant repercussions on the economy, as consumer attitudes shift and lenders become more or less confident as a result.

Does Your Small Business Depend on International Trade?

Speaking of broad economic impact, each candidate’s attitudes on international trade could weaken or strengthen U.S. businesses, depending on your perspective. It may be easier or more difficult during the next few years to establish overseas corporate partnerships, reach consumers in different countries, and sell products and services all over the world.

What’s Your Take on Immigration & the Startup Visa Proposal?

According to the Partnership for a New American Economy, over 40% of Fortune 500 companies were founded by immigrants or children of immigrants. America’s policies on immigration fuel innovation and competition, which aren’t necessarily net-positive or net-negative effects for each and every company.

So, while border control is a deeply personal issue for many on all sides of the debate, there’s a business case to be made either way—so long as you can differentiate the facts from the rhetoric.

Where Can You Go for Detailed Information About Each Candidate?

In the next few weeks, take the time to educate yourself on each candidate’s positions. Here are a few resources that will help you start researching before you cast your vote:

Compare the candidates’ stances on key issues at ProCon.org.
Check out PolitiFact’s rundown of how each candidate’s presidency may impact the economy: “Clinton has literally decades of experience in the domestic and international policy trenches. Befitting this background, she has offered a wide range of detailed proposals on everything from renewable energy goals to sick-leave guarantees. […] By contrast, Trump is a novice in electoral politics but an experienced CEO. He has offered specifics on a few issues, such as taxes and trade, but for the most part, Trump’s web pages on the issues offer broad statements rather than details.”
Watch Bloomberg Politics’ Steve Yaccino break down Clinton and Trump’s economic plans.

Read Entrepreneur’s five-point comparison of Clinton and Trump’s tax plans: “There are many businesses right now that pay little or no tax under the current tax laws. Real estate holding companies, research and development companies, oil and gas developers, agriculture and mining all enjoy major tax incentives under the current tax laws. Presumably, all of these incentives would remain under the Clinton tax plan, as she seems determined to maintain the status quo. On the surface, Trump’s plan is clearly better for business, but the question is whether it will be better for your business.”
Dive into a detailed comparison of each candidates’ tax proposals at TaxFoundation.org.
Read “The Entrepreneur’s Case for Trump” (Wall Street Journal): “The rise of Donald Trump has exposed a deep chasm in America between the haves and have-nots. I could go on, but you have probably read that story by now. You’ve also likely read about conservatives who think that stopping Mr. Trump is the only way to save their cause. I’m here to explain why they couldn’t be more wrong. What principled conservatives fail to understand is how the nation would benefit from putting a right-leaning entrepreneur in the White House…”
Read “Why I, A Woman Tech-Entrepreneur, And Immigrant, Am Voting For Hillary” (Huffington Post): “Hillary, as the first woman to be a presidential nominee in the U.S., will certainly leave her legacy behind for her perseverance, compassion, and inner strength. I cringe when I think how she will be subjected to the ugliest political invective and insults in our history, partly because she is a woman. It is time we stop castigating Hillary and give her the opportunity to lead our nation and uphold and elevate American values.”
Economists calculate how the candidates’ proposed policies would affect the economy by increasing federal debt, at crfb.org.
Read about the ramifications a Clinton or Trump presidency could have on small businesses, as per Sujan Patel, writing for Inc.: “One of the most appealing things to Donald Trump supporters is the perspective he brings as a business owner; a perspective that isn’t marred by lobbyists and political favors. Many business owners feel like the country needs the fresh, non-political perspective of Trump, given the state of the current economy.“On the other hand, some small business owners, like Brian Smith of Brooklyn’s Ample Hills Creamery, think Hillary Clinton is better suited for the job. Smith’s company is trying to secure a bank loan for a factory. He told CNBC that he believes Clinton’s proposals will make it easier to allow business owners like himself to secure capital for expansions. This is a critical issue for small businesses in the U.S.—lack of cash flow is the number one reason businesses fail.”

If at any point during your research you wonder how certain regulations and tax codes will affect your specific business don’t hesitate to contact us.

So, what other small business issues would you like the candidates to talk about?

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