Business Tax Planning Implications of a Trump Presidency
Thursday, December 1, 2016

          Last week, we reported to you various tax changes that are likely to be implemented as a result of the Presidential election and President-elect Trump's tax plan. Look for tax legislation to happen within the first 180 days of Mr. Trump's presidency. Tax law is created by Congress, so President-elect Trump's tax plan probably will not be implemented exactly as presented on his website, www.donaldjtrump.com/policies/tax-plan; however, there are so many similarities between his plan and the plan prepared by the Republicans in the House of Representatives that we can make some educated guesses about what is likely to happen. In this newsletter, we have detailed some of the more likely changes for business tax returns - and what that might mean for you in planning for the future of your business.

Potential Changes:

Small Business and Corporate Tax Breaks: 

  • Trump's Tax Plan: The plan reduces the top taxable rate for all businesses, including pass-through entities and sole proprietorships, from 39.6% to 15%.
  • Observation:
    • Trump has said that he would decrease ALL business income taxes to 15%. That includes sole proprietorships, S Corporations, LLCs, and other entities taxed as partnerships. All of these entities' income is currently reported on your personal income tax return, thus your tax liability from business income could decrease considerably. This would be a massive change in tax law and decrease almost all of our business owner's income tax liability significantly.
       
  • Planning:
    •  All business owners should consider deferring income to the largest extent possible. If your business is anticipating generating large sales in the near future, consider waiting until 2017 to complete these sales. Depending on the income limits of the new brackets, this could save you tremendously in taxes.
    • Consider advancing business deductions into 2016 instead of waiting until 2017. You might find a greater tax benefit with this year's higher tax rates.

Both plans do still call for a business credit to encourage research and development, similar to the credit in place now. If this credit has been part of your tax strategy, plan to continue monitoring your research and development costs to see a bit of a tax break.

Alternative Minimum Tax:

  • Proposed Plans: Both proposed tax plans call for a complete repeal of the Alternative Minimum Tax (AMT) for corporations.
  • Planning: 
    • To compensate for the loss in tax revenue from the repeal of the AMT and the decrease in the top tax rates, the number of deductions available to corporations will be significantly reduced. While the repeal of the AMT might be helpful in reducing your tax bill, the loss of some deductions may not be. We cannot make specific recommendations for your business situation until we know exactly what the law will look like, but be aware these changes are likely to occur.

Immediate Expensing:

  • Proposed Plans: The House of Representative's plan would allow ALL businesses to elect to immediately expense, or "write off", the cost of all business purchases of equipment, fixtures, vehicles and other capitalized personal property (Note: President-elect Trump's plan currently limits this election to manufacturing businesses). This would be similar to current §179 expensing, and includes personal tangible and intangible property with the exception of land. Businesses that take advantage of this immediate expensing will no longer be able to deduct interest expense on any debt incurred as a result of borrowing to purchase the property.
  • Planning: 
    • If your business plans to make purchases of capital assets and will owe tax this year, consider using the existing §179 expensing rules for the current tax year.
    • If your business will owe little in taxes this year, consider waiting until 2017 to make purchases of capital assets to take full advantage of the possible immediate expensing provisions.

Begin plans to reduce your debt. Infusion of capital by business owners to reduce business debt is something all owners will need to consider if business interest expense is no longer deductible.


As you begin planning for your business and its future, keep in mind that these plans are only in the proposal stage right now. We do not know if and/or when these proposals will be effected into law, although it is clear that businesses should be gearing up for many changes in tax planning. If you have any questions or concerns while reviewing these proposals, please contact us and we can work with you to determine the best way to proceed.

Thank you,