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How the Election Could Affect Your Federal Taxes

  • 25 October 2016
  • Author: Alexander Carr
  • Number of views: 2940
How the Election Could Affect Your Federal Taxes

Early voting has started and we’re only weeks away from having a new U.S. President elected. There’s been a lot of talk about Donald Trump’s and Hillary Clinton’s own tax records, including Tax Notes’ take featuring Steven Bankler’s expertise.  But how will each candidate affect your own tax bill if they are elected?

While nothing is certain, it’s a good idea to start considering the potential effect a Trump or Clinton win will have on your personal and small business tax obligations. We gathered opinions from across the nation to paint the picture.

What if Trump wins?

A recent Morgan Stanley report points out that Trump favors reducing the number of income tax brackets to three, with the highest topping out at 33 percent (the current top rate is 39.6 percent). Trump is also set on rewarding the middle class with increased tax cuts and credits.

As far as successful business owners are concerned, Kiplinger points out that Trump offers a 15 percent rate on business income (whether earned by corporations,  pass-through entities [S corporations, partnerships, LLCs) or  sole proprietorships). The publication goes on to explain that Trump favors full expensing for new asset purchases such as buildings and equipment. He has also stated that he wants to do away with the estate and gift tax, but has not stated the rates that would be charged to  capital gains.

What if Clinton wins?

While Trump would like to reduce the number of income tax brackets, the Morgan Stanley report states that Clinton would like to add a 43.6 percent tax bracket for the highest earners which, as Steven Bankler discussed earlier this year with Bloomberg, is the highest rate since 1986. She has also voiced support for the "Buffett Rule," calling for a minimum effective tax rate for millionaires. However, she has promised tax cuts for the “middle class” (incomes less than $250,000).

Under Clinton, successful business owners may see a cap  on all itemized deductions. These deductions would be limited to a tax rate of 28 percent, Kiplinger points out. “This limitation would apply to other tax breaks, too, such as the write-off for IRAs and moving expenses,” the article adds. “And it would nick some currently tax-free items, such as 401(k) payins, tax-exempt interest, and the value of employer provided medical insurance.”

Other Uncertainties

Who sits in the Oval Office isn’t the only factor that will determine how federal taxes may change for business owners. The makeup of the U.S. Congress matters, too. With so much uncertainty, morale among business owners is lower than it’s been in recent years. In a Capital One study, one in four business owners said that uncertainty surrounding the upcoming election and, specifically, unclear tax policies and economic growth, has caused them apprehension to the degree that it has affected hiring and investments.

For questions about how the election may affect your own tax situation, contact us.

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