It’s election year, which means we’re seeing a lot of tax proposals - some good and some bad.. Before we dive into some ideas from Harris and Trump, I wanted to remind you about our recent Project 2025 post
Trump posted on Truth Social that he has “nothing to do with them” and isn’t familiar with who’s behind Project 2025. And to be fair, if Trump wins the presidency, he’s not bound to follow Project 2025’s proposals. However It is worth noting that he did follow 64% of similar recommendations from the Heritage Foundation during his previous term and the team behind Project 2025 includes 140 folks from Trump’s previous administration.
Here’s a quick rundown of what Project 2025 has proposed:
- Shifting to two income tax rates: 15% and 30%
- Extending and expanding the 2017 Tax Cuts and Jobs Act
- Lowering the corporate tax rate from 21% to 18%
- Replacing Income Tax with a Consumption Tax
- Making changes to the IRS, including budget cuts and more presidential appointments within the agency
Here are a few recommendations from both Harris and Trump:
Tax free tips (Harris and Trump)
This policy seems a bit unfair at first glance. When most states likely don’t adopt similar measures, it could complicate individual tax returns. Additionally, there’s a concern that this could lead to an uneven playing field, where compensation might be categorized as tips instead of wages, potentially making employees more reliant on tips.
Imagine a restaurant scenario: a dishwasher working 40 hours a week at $15 per hour would have $600 in taxable income. In contrast, a waiter at the same restaurant, working the same 40 hours at the minimum wage for tipped employees in New York and earning $100 a day in tips, would bring in $900 but only be taxed on $400. This illustrates how different the tax implications can be depending on job roles and compensation structures.
Tax free Overtime (Trump)
This might end up keeping tax preparers quite busy, especially if states don’t adopt the same changes. Plus, the updates needed for W-2s and payroll systems to handle this correctly could lead to additional costs for tracking and running payroll.
$50k start up (Harris)
This might sound like a big deal, but it’s not as impactful as it seems.
Start-up expenses are treated a bit differently for tax purposes. You can typically deduct up to $5,000 in start-up costs in your first year. Any costs beyond that have to be spread out and deducted over 15 years.
Start-up costs can include things like market research, advertising, professional fees, and training. However, if you're buying fixed assets like equipment or property, those costs usually have to be capitalized and depreciated instead of being deducted as start-up expenses.
For service-based businesses, the start-up phase often ends when you incorporate, which means you can shift from start-up costs to regular deductible operating expenses quickly. In these cases, a higher start-up deduction limit doesn’t really make a difference.
For businesses that need a lot of fixed assets, those costs are already dealt with through capitalization and depreciation. Thanks to Section 179 and bonus depreciation, you can often write off most of the cost of these assets in the first year anyway.
Capital gains (Harris)
The new tax plan aims to address how the wealthiest Americans are taxed by focusing on their investment gains, even before they sell the assets.
For individuals with over $100 million in wealth, this plan would require paying at least 25% on both their income and the unrealized gains from their investments, such as stocks, bonds, and real estate. This so-called "billionaires-minimum tax" could potentially lead to significant tax bills for people who have substantial wealth tied up in stocks and other assets they haven’t yet sold.
Even when (if) passed by congress, the rules and forms that will need to be created by the IRS to provide the value on unsold assets would be a momentous undertaking.
End the SALT Deduction Cap (Trump)
The state and local tax deduction allows taxpayers who itemize to deduct property taxes, sales taxes and state or local income taxes from their federal income taxes. Prior to the Tax Cuts and Jobs Act (TCJA), there was no limit on how much people could deduct through the SALT deduction. But the 2017 tax overhaul passed under Trump limited the deduction to $10,000.
The SALT deduction cap is a provision that's due to expire in 2025, as are many other parts of the TCJA. But Trump has previously indicated he wants to extend the provisions in his signature tax law. But to prevent a deficit impact outside a 10-year window, it will be necessary to comply with Senate reconciliation rules to avoid a threatened filibuster. That means that it is unlikely that extending the TCJA without the SALT cap is possible.
Additional proposals from Harris:
- Set the capital gains tax rate at 28 percent
- Set the corporate tax rate at 28 percent
- Create a $25,000 tax credit for first-time homebuyers
- Increase the child tax credit for all parents, including giving new parents a $6,000 credit
- Ensure no tax hikes on individuals making less than $400,000
Additional proposals from Trump:
- Slash corporate taxes to 15 percent
- Institute a tariff of up to 20 percent on all imports (except those from China, which would have a 60 percent tariff)
- Renew the individual tax cuts from 2017 but recently he talked about not renewing the SALT Deduction Cap, so who really knows the details.
- Get rid of taxes on Social Security benefits
What’s Next?
So there you have it, some insight into what your taxes could look like depending on who wins the election. As your nonpartisan accountant, I do urge you to get out there and vote. For more information on how to make that happen, go to https://www.vote.org/
