Proposed Tax Law Changes Could Impact Expansion Strategies – Part 3

December 13th, 2016

In part two of this three part blog series Charles Postal, a founding partner of Topline Valuation Group and Managing Partner of accounting firm Santos, Postal & Company, P.C., covered the impact of potentially repealing the alternative minimum tax (AMT), federal estate and gift tax and the Patient Protection and Affordable Care Act (ACA). Part three of this series address certain business tax proposals and what to expect for the remainder of 2016.

Business Tax Proposals

On the business front, President-elect Trump highlighted small businesses, the corporate tax rate, and some international proposals during his campaign, along with the simplification and reduction of taxes for small business as areas that, when fixed, would stimulate the economy. The following are the critical components of the President-elect’s business tax proposals:

  • For small businesses he proposed a doubling of the Code Sec. 179 small business expensing election from $500,000 to $1 million, as well as the immediate deduction of all new investments in a business – a move already endorsed by Congressional tax reform/simplification advocates.
  • The current corporate tax rate is 35 percent. President-elect Trump called for a reduction in the corporate tax rate to 15 percent, and proposed sharing that rate with owners of “pass through” entities (sole proprietorships, partnerships, S corporations, etc.) on profits that are put back into the business.
  • Multinational corporations would, based on campaign materials, receive a one-time reduced repatriation of foreign earnings tax rate of 15-20 percent (current rate is 35 percent) on foreign subsidiaries’ earnings being held offshore. The President-elect believes a lower tax rate would encourage these companies to repatriate a significant amount of these earnings, which would benefit the U.S. economy and government. Many more details about these corporate and international tax proposals are expected to be released over the coming months.

Year-End 2016

More immediately, the calendar is quickly turning to 2017. Congress will meet for a “lame duck” session and is expected to take up tax legislation. Exactly what tax legislation Congress will consider before year-end remains to be seen. Every lawmaker has his or her “key” legislation to advance before the end of the year, which includes:

  • Expiring tax extenders, energy extenders in particular.
  • Funding the federal government, including the IRS, through the end of fiscal 2017.
  • Enhancing individual retirement savings.
  • Providing assistance to citrus farmers, small businesses and more.

Some of these bills, if passed and signed into law, would impact year-end tax planning. The expiring extenders include the popular higher tuition and fees deduction, as well as some targeted business incentives. If these extenders are renewed, or made permanent, the Santos, Postal & Co., P.C. office can assist you in maximizing their potential value in year-end tax planning.

Another facet of year-end tax planning is looking ahead. President-elect Trump has proposed some significant changes to the tax code for individuals and businesses. If these proposals become law, especially any reduction in income tax rates, and are made retroactive to January 1, 2017, your tax planning definitely needs to be reviewed to maximize potential tax savings.

Working with Congress

When the 115th Congress convenes in January 2017, the GOP will be in control of both the House and Senate, which should allow President-elect Trump to move forward on his proposals more easily. It remains to be seen, however, what compromises will be necessary between Congress and the Trump Administration to find common ground. Indeed, compromise will be essential to on-board both GOP fiscal conservatives seeking revenue offsets to pay for tax reduction, and Senate Democrats holding filibuster rule to prevent passage of tax bills with fewer than 60 votes. Whether tax proposals can be packaged within a broader mandate for comprehensive “tax reform and simplification”, as opposed to considering tax proposals one tax bill at a time, remains to be seen.

If you would like to confidentially speak with a member of our team about how these campaign and income tax proposals could affect you and/or your business, send us an email at hq@kaulkin.com.

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