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The upcoming 2024 presidential election could have profound implications for the accounting profession, specifically on tax planning.
So, whether you’re a Republican or a Democrat, or somewhere in between, it’s crucial to get a picture of what tax planning could look like once the new president takes office on January 20, 2025.
Because both candidates have put forward wildly different tax policy proposals, we’ve made this side-by-side comparison to help you better prepare for whatever direction the looming tax reform goes.
Why is Tax Planning Front & Center in the 2024 Election?
While tax policy is a regular point of discussion every election, the amount of attention this issue is getting in this year’s presidential campaign is a far cry from past presidential races.
One of the primary reasons tax reform is such a hot topic this year is the impending expiration of the 2017 Tax Cuts and Jobs Act—a landmark legislation passed during the Trump presidency. By the end of 2025, almost all key provisions of the Trump tax cuts will have expired, giving way for Congress to craft a new bill.
Polar Opposite Views on Tax Reform
Given the deepening political divide in the country, it’s no surprise that Democratic candidate Kamala Harris, and Republican bet, Donald Trump don’t see eye-to-eye on most key issues. However, their views on tax policy stand out as one of the starkest contrasts, with each positioned at the opposite extremes.
Although both candidates agree on the need for updated tax legislation to address the current realities on the ground, their approach couldn’t be more opposite— Harris’s plan is more about ensuring fairness by taxing the rich and big corporations, while Trump focuses on boosting businesses and domestic manufacturing by slashing corporate taxes and imposing hefty import tariffs.
Let’s break down what each candidate’s tax proposal looks like.
Harris Eyes Tax Breaks & Support for the Middle Class
As the sitting Vice President, Kamala Harris’s tax policy recommendations tread a similar path as President Joe Biden’s, while still stamping her identity and carving her own political path.
To fully optimize your firm’s tax planning strategy for a potential Harris presidency, let’s dive into her proposed tax policy. As of writing, these are what Vice President Kamala Harris has put forward:
Capital Gains Tax:
Kamala Harris wants to raise the capital gains tax rate to 28%, an 8-point increase from the current 20%. This would affect people earning over $1 million annually but exclude income from stock dividends.
“We will tax capital gains at a rate that rewards investment in America’s innovators, founders, and small businesses…If you earn $1 million a year or more, the tax rate on your long-term capital gains will be 28% under my plan because we know when the government encourages investment, it leads to broad-based economic growth; and it creates jobs, which makes our economy stronger,” says Harris during a campaign rally speech.
According to Harris, her proposed corporate tax rate ensures that “big corporations pay their fair share.”
Corporate Tax:
She also proposes increasing the corporate tax rate to 28%, up from 21%, and supports imposing a “billionaire tax,” which raises unrealized capital gains tax to 25% for individuals with $100 million or more in assets.
Small Business Tax Break:
Under Harris’s tax reform vision, she aims to encourage and incentivize entrepreneurship by giving new small businesses up to $50,000 in tax breaks, a significant increase from the current $5,000 deduction.
First-Time Homebuyer Credit:
Harris also plans to provide a $25,000 tax credit for first-time homebuyers, to make homeownership more accessible.
Child Tax Credit:
One of the few key issues Trump and Harris agree on is the expansion of the Child Tax Credit or CTC. However, CTC expansion is such a hot–button topic for most politicians because while it provides middle-income families instant financial relief, it can also potentially jack up federal spending.
Compared to the proposal of the Trump campaign, which aims to boost the child tax credit from $3,000 to $5,000 per child across the board, many tax experts tout Harris’s nuanced version as the more moderate and sensible approach. She intends to expand the CTC by offering $6,000 to parents of newborns, $3,600 (from the current $3,000) to those with children between two and five, and $3,000 for ages six to 17.
Taxes on Tips:
One other issue former President Trump and Vice President Harris agree on is reducing taxes on tips. However, just like on CTC, their approaches diverge.
Unlike Trump who promises not to tax tips altogether, Harris takes a more limited approach by proposing to get rid of the federal income taxes but retaining Social Security and Medicare taxes on tipped wages.
No Tax Increases for Under $400,000 Income:
She pledges to maintain current tax rates for individuals making less than $400,000 a year. For those earning more, she would restore income taxes to the pre-2017 rate of 39.6%.
How to Optimize Tax Planning for a Potential Harris Tax Policy
Vice President Kamala Harris’s tax proposal introduces a series of changes that would significantly affect tax planning, particularly for corporations, high-net-worth individuals, small businesses, and families.
From a tax accountant’s perspective, these changes demand careful planning to mitigate increased tax liabilities while maximizing available credits and deductions. Here’s how it impacts specific sectors:
Corporations
Raising the corporate tax rate from 21% to 28% could increase the tax burden on corporate profits, which could potentially change how businesses approach reinvestment, dividend payouts, and employee compensation.
Recommendation: Tax planning would have to shift toward strategies that minimize taxable income, such as increased reliance on tax-deferred investments, maximizing deductions, and possibly restructuring business operations to optimize tax efficiency.
Wealthy Individuals
If you’re advising high-net-worth individuals, Harris’ push to raise the capital gains tax to 28% and introduce a 25% “billionaire tax” on unrealized gains requires sophisticated tax planning strategies to dampen the blow of the higher rates on your clients.
Recommendation: Prioritize long-term estate planning, such as gifting assets before the new tax policy takes effect, diversifying portfolios to include more tax-advantaged accounts, and timing asset sales to capitalize on lower tax rates before any legislative shifts occur. And since unrealized gains aren’t typically taxed until assets are sold, you may want to advise clients to hold on to investments with the highest value appreciation potential. You may also want to explore other strategies like trust formation or offshore investment vehicles to help clients circumvent or defer these taxes.
Small Businesses
Small businesses, especially startups, would benefit from Harris’s plan to increase the tax cuts for new small businesses up to $50,000. This would provide immediate financial relief and incentivize entrepreneurship.
Recommendation: If you have a client who’s planning on starting a business, you should ensure that they meet the eligibility criteria by advising them on how to structure their operations so they may qualify for the deduction and maximize its benefits.
Trump Banks on Corporate Empowerment to Fuel “America First” Agenda
In contrast to Vice President Kamala Harris’s more grassroots, bottom-up approach, former President Donald Trump’s tax messaging is geared toward the highest rung of the socio-economic ladder. By giving corporations and the ultra-wealthy tax cuts, Trump hopes to boost domestic production and create more jobs, thereby strengthening the economy.
Donald Trump’s maximalist tax agenda isn’t new. During his first term, he oversaw a radical change to the U.S. tax code through the Tax Cuts and Jobs Act of 2017 which imposed significant corporate tax cuts. His tax policy proposal this time around is a continuation of that but aims to double down on his “America First” ideology by protecting U.S. industry and boosting local manufacturing.
Here are the key elements of Trump’s tax reform and how they could affect your firm’s tax planning strategy:
Corporate Tax Cuts:
Trump proposes reducing the corporate tax rate from 21% to 15% particularly for companies that manufacture in the U.S. This is a further cut from his first-time reduction.
Tariffs:
One of Trump’s most popular rallying calls is empowering domestic production and manufacturing. To bring that vision to life, Trump plans to implement a 20% tariff on all imports, except for Chinese goods which would face a whopping 60% tariff. He suggests that this could replace income taxes altogether, although most experts warn that high import tariffs typically lead to higher consumer costs.
2017 Individual Tax Cuts Extension:
Trump intends to renew the 2017 individual tax cuts for all American tax brackets, including the highest earners. If not renewed, these tax cuts are set to expire in 2025.
Social Security Tax Extension:
Trump proposes eliminating taxes on social security benefits for retirees, which would save seniors approximately $560 annually. However, this move could cost up to $1.8 trillion, straining the social security fund, which is already projected to run out by 2035.
Eliminating Taxes on Tips:
Just like Vice President Harris, former President Trump also suggests removing taxes on tips. However, consistent with his more populist pronouncements, his proposal would eliminate all taxes on tipped wages, costing the government up to $250 billion in revenue through 2035.
Child Tax Credit:
While not directly endorsed by Trump, his running mate, Ohio Senator JD Vance has floated the proposal to increase the child tax credit by $5,000 per child.
“I’d love to see a child tax credit that’s $5,000 per child…President Trump has been on record for a long time supporting a bigger child tax credit, and I think you want it to apply to all American families,” said Vance during an interview on Face the Nation with Margaret Brennan.
How to Optimize Tax Planning for a Potential Trump Tax Policy
Former President Donald Trump’s tax policy presents several implications for both corporate and individual tax planning. His proposals emphasize tax reductions, particularly for businesses and high-income individuals, while introducing tariffs that may create additional financial considerations for consumers and companies relying on imports. Below is a breakdown of the potential impacts on tax planning:
Corporations
Trump’s plan to reduce the corporate tax rate from 21% to 15% offers significant tax relief for businesses, especially those manufacturing in the U.S. This reduction could potentially free up capital for reinvestment, expansion, or shareholder distributions.
Recommendation: If your client base includes businesses that have significantly relied on offshore labor to fulfill their manufacturing needs, you may want to advise them to study the feasibility of bringing their production back home to take full advantage of these potential tax cuts. A six percent tax reduction can significantly improve their capital expenditures, research and development, and compensation structures, and boost other areas of business growth.
However, a lower tax rate might also lead to increased scrutiny from tax authorities, as businesses may become overly aggressive in seeking deductions. As an accountant, it is your duty to ensure compliance with regulations while helping your clients maximize the benefits of lower corporate tax rates.
Impact of Tariffs on Businesses
Trump’s proposed tariffs of up to 60% on Chinese goods and 20% on all other imports could significantly affect businesses that rely on foreign goods or raw materials. Tariffs are essentially taxes on imports, and the increased costs could be passed on to consumers or absorbed by businesses, leading to higher operating costs.
Recommendation: As tax accountants, you may have to advise clients to reassess supply chain costs and devise strategies to mitigate the impact of these tariffs. Given that domestic production is one of the conditions to qualify for lower corporate tax rates under Trump’s tax policy, it might make more business sense to advise clients to shift production back to the U.S. However, these types of moves need to be carefully analyzed from a cost-benefit perspective.
Individual Tax Planning
For individuals, Trump’s proposal to extend the 2017 tax cuts benefits high earners the most, as it maintains lower rates across all income brackets. Meanwhile, his plan to eliminate taxes on Social Security benefits for retirees would directly impact retirement planning.
Recommendation: Tax accountants must advise clients on long-term tax planning strategies, such as income deferral, timing of investments, and charitable contributions, to take full advantage of the favorable tax rates. For seniors, on the other hand, while eliminating taxes on Social Security benefits may allow for more flexible financial planning, you must also take cognizance of the potential adverse effects this policy might have on the sustainability of the Social Security system.
Equip Your Firm to Respond to Any Industry Disruptions
Regardless of who your horse is in this race, whether you agree with either candidate’s tax policy proposals or not, one thing is for certain—to protect your client’s interests, you must optimize your tax planning strategies for whatever tax legislation the new administration will put forward.
Given the looming tax reform, you should anticipate more clients coming to you for advisory services. Have you assessed your firm’s capacity to respond to a potential rise in demand?
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