As we approach another election cycle, uncertainty looms over the future of tax policies that impact individuals and businesses alike. The simple fact is, that the tax environment for most individuals and businesses is about to get worse and a failure to act now will have long-lasting (and costly) implications.
The Tax Cuts and Jobs Act (TCJA), enacted in 2017 under the Trump administration, introduced substantial tax cuts and reforms that benefitted many taxpayers, including small and mid-sized business owners. Some key features include lower income tax rates, increased standard deductions, and more favorable treatment of pass-through income. However, many provisions of the TCJA are set to expire in 2025, unless extended by Congress.
While former President Donald Trump has expressed a desire to extend the TCJA provisions, achieving this could be challenging. Extending such tax cuts requires Congressional approval, and given the current political division, passing significant tax legislation might face substantial hurdles. If re-elected, the political landscape may not afford Trump the same momentum experienced during his first term. As a result, taxpayers relying on extensions or hoping for further reductions might find themselves at a disadvantage if they don't strategize their tax plans now.
On the other hand, should Vice President Kamala Harris ascend to the presidency, the tax environment could shift in a different direction. The Democratic tax agenda often emphasizes increasing taxes on the wealthy and large corporations to fund social programs and reduce income inequality. While such measures aim for broader societal benefits, they may not be as favorable for small and mid-sized business owners who benefited under the TCJA. Business owners might face higher tax burdens or adjustments in deductions and credits, making it crucial to lock in current benefits before potential policy changes.
Uncertainty in Fiscal Policy: The political outcome of the upcoming elections remains unknown, and with it, the future of tax policies. Taxpayers have a limited window to capitalize on existing laws and prepare for potential changes.
Opportunity for Strategic Planning: By optimizing your tax position now, you can better manage your financial outcomes. Strategies might include accelerating income, deferring deductions, or making use of retirement savings vehicles and business investment credits while they're still beneficial.
Adapting to Potential Changes: Proactively planning for various scenarios enables businesses and individuals to adapt quickly when changes occur. Having a strategic plan in place ensures you're not caught off guard.
Maximizing Current Benefits: With the TCJA’s favorable provisions, such as the Qualified Business Income deduction for pass-through entities, taxpayers have an opportunity to reduce their effective tax rate significantly. These advantages could diminish if not leveraged now.
In a landscape defined by political uncertainty, taxpayers stand to benefit from focusing on optimizing their tax positions today. Whether facing the possibility of a challenging legislative environment for President Trump or a likely shift in tax priorities under a Harris administration, being prepared is the best defense. By consulting with tax professionals and utilizing available resources to plan strategically, individuals and businesses can secure their financial future amidst whatever changes may come. Don’t wait until it's too late—take action now to fortify your tax position.