The small business sector has high expectations for Donald Trump’s presidency. A professed pro-business candidate, Trump promised to flatten the tax code, cut the corporate tax rate and reduce the regulatory burden on firms. The question for smaller companies is what to do in the interim while they’re waiting for these promises to become legislation. Much of what the new president has promised is in broad strokes and will need more fleshing out to see the effect that specific policy changes may have on individual sectors.
However, there are some trends that seem like they can be expected under a Trump administration.
These are the business tax and regulation changes expected under the Trump administration Tweet This
The Trump administration has promised to dramatically lower taxes, both on the personal and corporate side. In fact, experts say these reductions would amount to the biggest tax cut since Ronald Reagan’s presidency in the early 1980s.
Concerning corporate taxes, the new regime wants to drop the posted rate from 35% to 15%. Thus, a small business may benefit if it currently pays a rate higher than 15%.
Also, Trump would have corporations that hold large amounts of cash offshore repatriate these monies to the United States, subject to a one-time 10% levy. That is compared to the current requirement where they would pay at a 40% level.
Because many small business owners are paid as individuals rather than as owners of companies, Trump’s proposals for personal taxes are important.
Here, the new president plans to chop the number of marginal tax brackets to three from the current seven – set at 12%, 25% and 33%.
The Treasury Department would then align the capital gains and dividend tax rates to match up with the new lower rate targets.
Trump’s tax modifications would also eliminate the net investment income tax, a levy established to help pay for the Affordable Care Act.
When you add in new proposed deductions and changes to existing ones, experts calculate middle-income business earners could save approximately 5% on their after-tax incomes while higher earners can reduce their tax bill by 19%.
Besides chopping personal tax rates on the top three tax brackets, Trump is also suggesting the elimination of the estate tax. Instead, the government would introduce a capital gains tax on holdings upon a person’s demise.
Another tax piece on the chopping block is the alternative minimum tax (AMT). The removal of the AMT could benefit people with large property holdings in states with high income taxes.
For individuals, the Trump administration plans to boost the standard deduction – the amount individuals claim rather than listing each deduction – to $15,000 (single person) and $30,000 (joint filers). In this case, subsequent lost revenue would be offset by getting rid of the existing personal exemption — what you take off your income line for dependents.
The incoming administration expects to leave both the mortgage interest and charitable deductions alone.
Trump is proposing a hike to the allowed deduction for childcare and elder care expenses. In return, however, families could only deduct these costs – in the case of childcare – until their child reached the age of 13.
In the case of businesses, manufacturers could benefit from a Trump proposal to allow firms to deduct the full cost of capital expenses. Firms would lose the ability to deduct their net interest payments, a tradeoff that would still help companies that had capital equipment and low debt levels.
On the minus side of the ledger, the Trump administration is proposing to eliminate many existing specialized tax breaks for firms, such as for domestic production activities – also known as Section 199 deductions – and the carried interest deduction. Left alone would be the existing research and development regime.
During and after the election campaign, the Trump campaign discussed placing a moratorium on new regulations and instituting a rule to cut two existing regulations for each new one instituted.
One industry group estimated that U.S. firms pay, on average, almost $10,000 per worker to comply with existing government rules. Of particular importance for smaller firms are new regulations, set to come into effect this month, which would expand the pool of workers eligible for overtime pay. Reports say Trump advisers are hinting the new administration would seek a delay in these changes or some exemption for small business.
Although not directly related to specific provisions, experts say Trump could also appoint agency heads who could reject a wider interpretation of which workers can be covered by various labor provisions, such as health and safety provisions and unionization rules.
For small businesses, more flexible regulators could mean fewer costly government rules and less paperwork.
On the environmental side of public policy, a Trump administration is signaling a wiliness to relax some environmental laws that protect air and water, such as allowing more drilling for oil and gas on federal lands.
One Trump target is a recent rule giving the Environmental Protection Agency the ability to regulate bodies of water on private property. Ranchers and other smaller enterprises consider these provisions too intrusive.
As noted in “The Proactive Small Business Owner: The Affordable Care Act“, the new administration says it will roll back provisions in the existing Affordable Care Act (ACA).
Experts say one option would be to allow states to have more of a say on healthcare policy, a move that could cut business red tape.
On the other hand, some smaller firms saw the cost of their healthcare plans drop, making them less sure of the value of a plan for a wholesale cut to the existing healthcare system.
Still, almost 90% of small businesses said they experienced a rise of at least 25% in the cost of their health plans under the ACA. That makes some sort of easing of the current healthcare system politically popular.
To get the entire scoop on how to be proactive with regards to company provided health insurance read “The Proactive Small Business Owner: The Affordable Care Act.”
In the end
Many experts expect Trump’s economic changes to help small business, partly through lower tax rates and partly through less government regulation and oversight.
But smaller firms face two issues in taking advantage of the proposed changes:
- Besides the area of taxes, the new government has not fleshed out many policy specifics. That means a particular industry might need to wait to see how much it will gain under the new administration.
- Also, the new government has four years to make good on its promises of lower taxes and less regulation. So some changes might come later in the mandate rather than earlier.
What you can do now
The new president will be inaugurated January 20, and likely high on Mr. Trump’s ‘do-to’ list will be bringing in his tax proposals.
Here are three things you can do now to help maximize your gains under the new regime:
- If appropriate, arrange for independent contractors and thus take advantage of the proposed 15% business tax rate.
- Delay purchasing assets until the new higher limits on capital asset deductions come into effect. The Trump administration plans to let you write off the entire purchase in year one rather than on a graduated scale under existing law. That said, there’s no guarantee on any of these deductions, so don’t delay purchases that are necessary for the immediate health and safety of your company.
- Look at accelerating state and local tax payments. Since the value of most existing tax deductions will fall under the new administration, pre-paying what you owe anyway to maximize the value of these write-offs under current tax rules makes sense.
And as always, consult with a lawyer if you have any questions about the implications of any changes to your business.
For more resources on taxes, regulations, and legal changes, check out these helpful articles and podcasts:
- Mind Your Business Taxes: 5 Details the IRS May Find Suspicious
- Employee or Independent Contractor? How You Classify Workers Matters Legally
- Human Trafficking Legal Changes May Affect Your Business
- Top Legal Issues for Government Contracting
- Veterans: Help with Certification, Contracts & Legal Issues
Photo Credit: JIRAIST, Twenty20