While all politicians make campaign proposals that often don’t come to fruition, it is important for small and mid-sized business owners to pay attention and understand what could be coming so you aren’t caught off guard. Proactive planning can ensure you’re ready to seize opportunities or respond to new challenges.
Several tax-related proposals from the 2024 campaign trail could have a direct impact on your business operations, staffing decisions, and even your personal wealth. Below, we break down the key proposed changes, starting with those most likely to affect your business and ending with those that may influence your personal financial strategy.
Potential Tax Changes Impacting Your Business
Restoring Key Provisions of the Tax Cuts and Jobs Act (TCJA)
- What It Is: A proposal to bring back critical business-friendly tax provisions from the 2017 Tax Cuts and Jobs Act (TCJA). These include 100% bonus depreciation, expanded research and development (R&D) expensing, and relaxed limitations on interest deductions.
- Government Impact: Estimated to increase gross national product (GNP) by 0.5%, add 119,000 jobs, but reduce federal revenue by $643 billion over 10 years.
- What It Means for Your Business:
- Bonus Depreciation: If you’re thinking about upgrading equipment, vehicles, or technology, you may be able to deduct 100% of the purchase price immediately rather than spreading it over several years.
- R&D Expensing: If your company invests in product development or process improvements, you could claim larger tax deductions.
- Interest Deduction Changes: If your business finances growth or purchases with loans, you may be able to deduct more of your interest expenses.
How You Can Prepare: If you’re considering a large purchase, upgrading equipment, or securing financing, it may be worth waiting to see if these provisions are reinstated. Timing major investments to align with tax changes can give you the chance to capture greater deductions and improve your business’s cash flow.
Domestic Production Tax Deduction
- What It Is: A proposed 28.5% deduction for domestic production activities, effectively reducing the corporate tax rate on certain U.S.-based production activities to 15%.
- Government Impact: Expected to increase GNP by 0.2%, add 38,000 jobs, and reduce tax revenue by $361.4 billion over 10 years.
- What It Means for Your Business:
- If your business produces goods, manufactures parts, or works with domestically sourced materials, you could see a tax reduction.
- If your supply chain depends on U.S.-made goods, this could help reduce costs on products and materials.
How You Can Prepare: Consider reviewing your supply chain to see if you can increase your use of domestic products. If you own or operate production-related facilities, this proposal could improve your profit margins.
Extension of the Opportunity Zone (OZ) Program
- What It Is: An extension of the Opportunity Zone (OZ) program, which encourages investment in underserved communities by providing tax benefits.
- Government Impact: Aims to stimulate community development by encouraging new housing, infrastructure, and business expansion in underserved areas.
- What It Means for Your Business:
- If you’re planning to open a new office, warehouse, or retail location, you could reduce your tax liability by investing in an OZ.
- Investors interested in supporting businesses in Opportunity Zones may be more inclined to partner with or invest in your company.
How You Can Prepare: If expansion is on your radar, it’s wise to evaluate if your new location qualifies as an Opportunity Zone. Investing in an OZ could defer or even eliminate taxes on gains from your investment.
Potential Tax Changes Impacting Business Owners Personally
Making the Gift and Estate Tax Exemption Permanent
- What It Is: A proposal to maintain the current lifetime gift and estate tax exemption of $13.99 million per person ($27.98 million for married couples) rather than letting it expire and revert to pre-2017 levels.
- Government Impact: This change is estimated to reduce tax revenue by $205.6 billion over 10 years.
- What It Means for You:
- For business owners, this could simplify estate planning, especially for those planning to transfer business ownership to the next generation.
- If your personal net worth exceeds $14 million, this proposal could save your heirs millions in taxes.
How You Can Prepare: Estate planning is always smart, but if the exemption is set to remain at $13.99 million, you may have more flexibility to plan long-term wealth transfers. Depending on how this goes, you will want to talk to us and your financial advisor about business succession planning.
Exempting Tips from Income Taxes
- What It Is: A proposal to exempt tips from federal income taxes but employment taxes like Social Security and Medicare (FICA) would still apply.
- Government Impact: This change would reduce tax revenue by $118 billion over 10 years.
- What It Means for Your Business:
- If you operate a business where employees receive tips (like restaurants, hospitality, salons, or service-oriented companies), you may have a competitive edge in recruiting and retaining staff.
- Tipped employees may prefer jobs where tips are not taxed, potentially increasing the competition for quality workers in certain industries.
How You Can Prepare: While this proposal is unlikely to impact your business directly unless you employ tipped workers, it could shift the overall labor market. Consider how wage competition might change if employees view tipping jobs as more financially advantageous.
Federal Income Tax Exemption on Overtime Pay
- What It Is: A proposal to make overtime pay exempt from federal income taxes.
- Government Impact: Estimated to increase GNP by 0.3%, add 405,000 jobs, and reduce federal revenue by $747.6 billion over 10 years.
- What It Means for Your Business:
- If your business employs hourly workers, this change could encourage employees to work more overtime, reducing the need for temporary or seasonal hires.
- Employees may become more willing to work additional shifts if they know their overtime earnings are not taxed.
How You Can Prepare: This proposal could make managing busy periods easier, especially during peak seasons. Consider how you could reduce hiring needs by encouraging your current staff to pick up extra shifts.
Eliminating Federal Taxes on Social Security Benefits
- What It Is: A proposal to eliminate federal income taxes on Social Security benefits.
- Government Impact: Expected to increase GNP by 0.1%, create 55,000 jobs, and reduce tax revenue by $1.2 trillion over 10 years.
- What It Means for You:
- If you’re planning for retirement, this change could increase your after-tax income.
- If you’re nearing retirement age, this shift could improve the cash flow you have available for your lifestyle or investment decisions.
How You Can Prepare: If Social Security income is part of your retirement plan, you may want to revisit your financial strategy. If this proposal becomes law, you’ll have more disposable income, which could impact your investment choices or tax strategy.
Stay Ahead of the Curve
While these proposals remain just that—proposals—being proactive is critical. Tax reform is one of the few areas of policy that can affect everything from your cash flow to your succession plan. By acting now, you position your business and personal finances to respond to whatever changes come.
We will continue to stay on top of legislative changes so you can focus on running your business. If you’d like help identifying strategies for managing potential changes, contact us today; we’ll do our best to help you stay ahead of the curve.