As election cycles heat up, business owners often find themselves in the crosshairs of proposed tax reforms. In this episode of Business by the Numbers, Hunt Demarest, CPA, dives into the tax proposals from Kamala Harris and Donald Trump, helping you cut through the noise and understand the real implications for your business.
Harris’s $50,000 Small Business Deduction Proposal
Kamala Harris made waves with her proposal to expand the small business deduction to $50,000. But before you get too excited, it’s essential to understand the context. Currently, startup expenses allow for a $5,000 deduction, with the rest amortized over 15 years. Harris’s plan would expand that to a full $50,000 write-off for new businesses.
For many small business owners, this deduction is already being used — or rather, they’re already writing off expenses that technically should be considered startup costs. So, while the increase sounds promising, it may not affect most businesses as much as it seems.
Trump’s Overtime Tax Elimination
Donald Trump’s proposal to eliminate taxes on overtime aims to support the blue-collar workforce. By making overtime pay tax-free, workers could potentially earn significantly more for their extra hours. This plan, if implemented, could incentivize employees to work more overtime, as it would increase their take-home pay substantially.
From an administrative perspective, this plan could be implemented relatively easily, but it could also lead to odd incentives. Businesses might begin to reclassify regular wages as overtime to take advantage of the tax benefits, leading to potential complications down the road.
Startup Expenses: Are You Already Benefiting?
One of the most misunderstood areas of tax law is the treatment of startup expenses. Hunt explains that many business owners, whether knowingly or not, are already writing off these expenses. While Harris’s proposal to increase the deduction is an interesting one, most small businesses are already benefiting from deductions under current laws.
Other Proposals: Social Security and Capital Gains
Trump’s proposal to eliminate taxes on Social Security benefits might appeal to retirees, but the fiscal practicality of such a measure remains questionable. Harris’s proposal to increase the capital gains tax rate to 28% (or higher for top earners) could have significant implications for high-income individuals and investors.
Will Any of These Proposals Pass?
Hunt’s ultimate takeaway is that, while these tax proposals are interesting and potentially impactful, they’re unlikely to pass without major changes. Politics and legislative hurdles make it difficult for sweeping reforms to take place, but staying informed helps you prepare for any potential changes that could affect your business.
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