How Could Small Business Tax Policy Change Under President Trump?

The election of President-elect Donald Trump, paired with a Republican-controlled Congress, could mean big changes to federal tax rules for small businesses. Many of them could be positive, though there are some caveats.

Sarah Schiltz, CPA, a manager at accounting firm MarksNelson, talked with Thinking Bigger Business Media about some of the policies that were part of the incoming president’s platform during his campaign.

At the top of the list? Lowering the corporate income tax rate to 15 percent. There is potential this wouldeven apply to S corporations, partnerships and other pass-through entities, too. Individuals would be charged a rate of 15 percent on pass-through income generate by the business (although a potential additional tax on cash distributed from the business could be imposed).

Trump has also recommended reducing the number of tax brackets for individuals to three: 15, 25 and 33 percent. Currently, the rate for the top bracket is 39.6 percent, meaning the highest-earning taxpayers could receive a substantial cut.

The president-elect also wants to eliminate the Alternative Minimum Tax for individuals and businesses. The estate tax could be killed, which could help business owners, though it might mean the end of the step-up basis for inherited assets, which  currently reduces heirs’ exposure to capital gains taxes.

On Section 179 expensing, Trump would like to raise the annual cap from $500,000 to $1 million for small businesses. (Section 179 allows companies to deduct the purchase price of equipment and other types of property in a single year instead of taking depreciation over several years.)

The president-elect has talked about repealing and replacing the Affordable Care Act, though he also mentioned the possibility of keeping some measures. It’s not clear if the ACA’s 3.8 percent net investment tax would be one of them.

Trump campaigned on the idea of expanding business tax credits for employers who help with child care—a popular idea on the trail—so it’s likely some expansion will happen.

To afford the proposed tax cuts, some existing incentives could be ended. (One that’s probably safe: the Research & Experimentation Tax Credit.) There also might be a cap on itemized deductions, which could affect the ability to write off large charitable donations or state taxes.

How much of Trump’s platform will end up taking effect?

On the one hand, having control of both the White House and Congress will give Republicans the ability to act relatively quickly. But it’s not clear how all these tax cuts will be funded, which might draw objections from members of Congress worried about large deficits.

“I think we can expect that some will take effect,” Schiltz said, “but certainly not all, not in the first year.”