The presidential election is just a week away (as I write this). Policy promises and proposals have been hurled left and right (as it goes with most election cycles), and the buzz specifically around presidential tax proposals is as loud as ever.
Trying to make sense of all the legal jargon and political-ese can be frustrating. What you really want to know is: Whoever wins the race, what would it mean for my wallet?
That’s what I want to help you navigate today: 1) what the presidential tax proposals are, 2) how they could impact your bottom line, and 3) what you should do about it.
Regardless of who you’ll be filling in the circle for on that ballot, these are the offers each candidate is bringing to the table.
Trump’s Tax Proposals
Here’s a short list of how the Trump administration would impact taxes:
- Income tax rates would be lowered from 21 to 20 percent, and that rate would be cut even further for companies that make products domestically.
- Taxes on Social Security benefits would end entirely.
- Overtime hours worked would not be taxed.
- A 10-20 percent tariff would be imposed on most imported goods (with a 60 percent tariff on goods specifically from China).
Trump’s stated goals for his tax plan are generally to put more money back in the pockets of workers and business owners – meaning you could walk away with more of what you earn (big news for those who like to work overtime).
Also, Trump will be looking to extend the 2017 TCJA provisions that are currently set to expire next year. This would keep the income tax brackets at the lowered amounts, maintain the raised standard deduction amount, and reduce taxes for a lot of business owners (think QBI) and corporations.
However, those hefty tariffs on imports could drive up the cost of goods, stretching your budget even thinner with higher prices and fewer choices at the checkout.
Harris’ Tax Proposals
Now, let’s take a look at how a Harris-led administration would impact taxpayers:
- The corporate income tax rate would be raised from 21 to 28 percent.
- The capital gains tax would be raised from 20 to 28 percent for those who make 1 million or more annually.
- The child tax credit would be amped up from 2k to 3.6k for younger children and up to 6k for a baby’s first year.
- First-time homebuyers would receive down payment assistance in the form of a 25k tax credit.
- Small business startup cost tax deduction allowance would jump from 5k to 50k.
- Medicare taxes would be bumped up to 5 percent for those who make more than 400k annually.
Harris has stated that her objectives are mostly aimed at assisting struggling middle and lower-class families. So, if you’re a parent of one of said families, you could see a little more money in your pocket thanks to the increased child tax credits (and you might actually be able to keep up with how fast your kids grow out of their shoes).
Or if you’ve been dreaming of owning your first home, the down payment assistance could make that dream more attainable, lowering monthly mortgage costs.
But in the business realm, raised corporate taxes could slow investments and job growth. Investors might also see slimmer dividends, so you might find yourself in a pinch if you’re reliant on portfolio income.
The unlikely common ground
Somewhat surprisingly, there is one proposal that both candidates share: Ending taxes on tips (cue service worker applause).
But, there’s reason to believe this proposal might actually do more harm than good… Something I spoke about a little while back in more detail but will briefly touch on again here.
Exempting tips from taxes could create a two-tiered system, where tipped employees end up with a significant tax advantage over non-tipped workers, which boils down to a wage structure mess. And industries that don’t typically rely on tipping, like grocery stores, might start adopting restaurant-style tipping practices, which could inflate the cost of the policy.
What should you do?
Here are TWO PROACTIVE STEPS you can take to prepare for whatever outcome the ballots determine:
First, analyze the potential impact these presidential tax proposals could have. For example, how might your business objectives, your individual tax position, or your estate planning goals be affected?
Then, strategize for year-end tax planning. Assess your income sources, identify your eligible deductions, utilize tax-efficient investments – you know, the works.
Stay informed, and have a (flexible) plan. This will put you in the best position to navigate possible changes with poise.
We hear you – trying to digest and plan for the impact of the presidential tax proposals is a lot to keep up with. We’re here to advise you through whatever may happen, and we can help you feel prepared to face change with end-of-year tax planning assistance. Just grab a time to chat with us: Schedule an Appointment
Heading to the polls with you,
Mike Mead, EA, CTC