Understanding Trump’s Tax Proposals and Their Impact on Small Businesses  | Tax Sherpa Live - 2024-07-23

In this week's Tax Sherpa webinar, we delved into the tax proposals from the current presidential candidates, focusing on Donald Trump’s plans. With the upcoming election, it's crucial to understand how these changes might affect you as a small business owner or solopreneur.

Key Takeaways from Trump's Tax Proposals

1. Lowering Corporate Tax Rates

Trump proposes reducing the corporate income tax rate from 21% to 20%, and possibly even 15%. This change primarily affects C corporations, but most small businesses in the U.S. operate as pass-through entities (like S corporations or partnerships) and wouldn't directly benefit from this change. However, lowering the corporate rate could make the C corporation structure more appealing for some businesses.

2. Capital Gains and Dividends

No specific changes have been proposed for capital gains and dividends taxes. There was a past proposal to adjust capital gains calculations for inflation, which would significantly benefit long-term investors by reducing the tax burden on the inflationary gains. We hope to see this proposal resurface.

3. Making Tax Cuts Permanent

The 2017 Tax Cuts and Jobs Act brought several significant changes, including doubling the standard deduction and eliminating personal exemptions. Trump's proposal aims to make these changes permanent. This would continue the benefits such as the Qualified Business Income Deduction, which allows pass-through entities to deduct up to 20% of their income.

4. Estate and Wealth Taxes

Trump plans to make the increased estate tax exemption from the 2017 Tax Cuts and Jobs Act permanent. This change would mean that fewer estates would be subject to the estate tax, benefiting those with larger estates.

5. Excise Taxes

One notable proposal is to tax large private university endowments, targeting institutions like Harvard and Yale, which have substantial endowments and favorable tax treatments.

6. Exempting Tips from Income Taxes

Trump has proposed exempting tips from income taxes. While this could benefit millions of workers in the service industry, the actual impact on federal revenue is minimal.

7. Tariffs and Trade

A significant proposal includes imposing a 60% tariff on U.S. imports from China. While intended to protect American jobs, this move could increase the cost of goods for consumers and disrupt supply chains.

How These Proposals Affect You

Small Business Owners and Solopreneurs

If you're operating as a pass-through entity, the proposal to make the Qualified Business Income Deduction permanent is particularly beneficial. It allows you to reduce your taxable income significantly.

Investment Income

For those with investment income, the lack of changes in capital gains and dividend taxes means current strategies remain effective. However, any future changes could impact your long-term investment planning.

Estate Planning

The proposal to maintain the increased estate tax exemption means continued tax efficiency in estate planning, allowing more wealth to be passed on to heirs without a significant tax burden.

Service Industry Workers

Exempting tips from income taxes could reduce your tax liability, potentially increasing your take-home pay. However, the implementation and enforcement of this proposal remain to be seen.

Consumers and Importers

The proposed tariffs on imports could lead to higher prices for goods, affecting your purchasing power and business costs if you rely on imported products.

Conclusion

Trump's tax proposals offer a mix of benefits and challenges. Lowering corporate taxes and making the Tax Cuts and Jobs Act provisions permanent could provide ongoing benefits for small business owners and solopreneurs. However, the proposed tariffs and the uncertain future of capital gains adjustments require careful consideration and planning.

As always, individual tax situations vary. For personalized advice, consider scheduling a session with Tax Sherpa to explore how these proposals might impact your specific circumstances.

Join us next Tuesday at 6 PM Eastern for our live session where we'll continue to break down the latest in tax strategies and proposals. Register at taxsherpa.com/live

For more insights and to access our DIY Tax Planning Templates, visit taxsherpa.com/templates.