Local tax advisers and small business experts say President-elect Donald Trump’s proposals indicate changes in the country’s tax system along with fewer regulations. Learn what this means for your business.
By Melissa Walker
Tax advisers and small business experts say President-elect Donald Trump’s proposals indicate changes in the country’s tax system along with fewer regulations and rules that could mean more money for businesses to develop and grow.
“With President-elect Trump, you have for the first time in a long time a blank slate: someone who comes from this strictly business
perspective, no past in politics,” says Tim Coonan, government relations special counsel for Davis Brown Law Firm in West Des Moines. “I think he is a person who understands business on a fundamental level. That isn’t always the case with people doing public policy.”
Trump performed well in smaller communities in the country, rural parts of Iowa and the “Rust Belt” in the upper Midwest where there are higher areas of blue collar jobs — all places that helped him get elected.
“He’s there largely because of support from these communities that have small business,” Coonan says.
While some of Trump’s proposed measures could take time to enact, and others will likely never come to fruition, there is a Republican majority in Congress, which some political analysts say may make it more likely that his plans do pass.
Small business owners should evaluate the following when considering how the new presidency will affect their business:
1. Who’s put in charge and where
Much speculation is being made about what a Trump presidency could mean to business owners, but the president-elect has given hints with proposals to reduce taxable incomes, both for businesses and personal income, a repeal of the estate tax and the Affordable Healthcare Act, and a reduction in business regulations.
Other hints will come in the form of executive orders that are immediately repealed and new ones that are issued to take their place, and in the form of the people who are put in authoritative positions, Coonan says.
“He didn’t lay out a lot of specifics, but what a small business owner should be doing is watching the appointments in the areas that affect them the most,” he says. “I think it’s hard to predict, but if you’re trying to stay ahead of the curve and you get a list of the posts of potential nominees that are going to affect small business, you can probably see what he has in mind.”
For example, Trump has nominated Iowa Gov. Terry Branstad as the next U.S. ambassador to China, and Branstad has accepted the offer. Branstad has been called a “longtime friend” of the United States’ largest trading partner, and some say his appointment could help ease trade tensions between the two countries.
Coonan says this appointment could give Iowa companies access to foreign markets and gives the state its own advocate at the national and international level.
“I think there will be some opportunity there for coordination and cooperation that might not have existed on a tangible level,” he says.
Coonan also points to the appointment of U.S. Rep. Tom Price of Georgia, an orthopedic surgeon who has been tapped to become the next secretary of Health and Human Services. Price has studied for six years on how to provide affordable health care to Americans and has introduced bills that offer a detailed, comprehensive replacement plan to the Affordable Care Act (ACA) since 2009.
“Because the (Trump) campaign lacked some specifics, the best barometer we have right now are the public appointees he has tapped for these offices,” Coonan says.
Price’s legislation, the Empowering Patients First Act, would repeal the ACA and offer age-adjusted tax credits for the purchase of individual and family health insurance policies. People would be incentivized to contribute to health savings accounts, states would receive grants to subsidize insurance for high-risk populations, and business and professional groups could provide coverage to members through “association health plans.”
2. Which rules and regulations has Trump slated for the chopping block
Trump has proposed a moratorium on all new regulations. Small business groups have voiced concern in the past about the effect federal, state and local requirements have on their companies and profits. They say the regulations come with increased costs because of the administrative costs and paperwork tied to them.
The National Federation of Independent Business reports that 45 percent of business owners — up from 17 percent in 2001 — consider regulations a very serious business problem. The advocacy group represents 325,000 small businesses across the country and works to level the playing field with larger businesses, government and labor unions in the areas of taxes, healthcare, regulations and more to help business owners run their businesses within interferences.
The new presidency has not yet revealed specific details about which regulations will be lifted, but some experts say those like the “Paris Agreement,” an accord to limit emission of greenhouse gases worldwide, could be on the chopping block, according to Fortune magazine.
Business owners also are watching to see what will happen with a temporary injunction on a new federal overtime rule that was set to go into effect this month and whether that injunction will become permanent or other changes will take place with a Trump presidency.
A federal judge ruled the U.S. Department of Labor exceeded the agency’s authority, when earlier this year, at the direction of President Barack Obama, it approved a regulation that required salaried employees who earn $47,476 or less per year to be paid time and a half if they work more than 40 hours in a week. The previous threshold was $23,660 and was last updated in 2004.
“That’s something I’m sure was on the mind of small business owners,” Huisman says. “With that being suspended, that’s helped them save some money in the short term depending on whether that gets repealed or not.”
According to the Labor Department, the new rule, which was to go into effect Dec. 1, would have made more than 4 million Americans eligible for overtime pay. In Iowa, at least 44,000 workers were predicted to be affected by the rule. The National Federation of Independent Businesses estimates that 44 percent of small businesses would have been affected by the new rule.
“I assume the new administration will reverse course,” Coonan says. “That’s an assumption. Whether than happens or not, I think he’s going to listen to the businesses as to what he should do there. The challenge is many businesses started planning for compliance in advance of the effective date. I think he’ll have to listen to the business community as to how best to proceed. It may be they’re too far down the road in changing classifications of employees.”
Trump has also said he will immediately repeal the ACA. Regulations could be changed to allow states to buy and sell insurance across state lines, to give individual consumers access to federal health savings accounts, and to make monthly premium payments fully tax deductible.
Small Business Majority, a national small business advocacy group founded and run by small business owners, says that whatever plan goes into effect, it has to ensure small businesses are able to get coverage.
“Many small businesses have gotten coverage (through the ACA) they wouldn’t have gotten otherwise,” said the organization’s CEO John Arensmeyer, in an interview with the Chicago Tribune.
Other small business owners have said the cost of providing insurance to their employees under the ACA has raised costs and hurt their bottom line.
Some business owners, specifically those whose company’s revenue has grown because of overseas sales, worry that Trump’s cutbacks to trade and anti-trade stance could harm their business, according to Fortune magazine.
Rebuilding the U.S.’s manufacturing base, another Trump goal, could bring jobs to the country, but repealing agreements such as the North American Free Trade Agreement (NAFTA) could discourage companies from returning to the United States, trade experts say.
Small business groups also have opposed such a move, as well as discussion of the U.S. withdrawing from the Trans-Pacific Partnership, currently awaiting approval from Congress.
The Small Business & Entrepreneurship Council, which is an advocacy, research and educational organization that aims to protect small business and promote entrepreneurship, has said NAFTA is a benefit to small business trade, and that free trade accords reduce expenses and expand opportunities for small business.
3. What could happen to taxes; what measures should I take in 2016?
Trump has proposed a reduction in the number of tax brackets and reducing the percentage of both business and personal income that is taxed.
Trevor Huisman, a tax manager with CliftonLarsenAllen LLP in West Des Moines, said businesses could experience a reduction in their taxes under Trump’s proposed changes to the tax rate. Rates could drop as much as 24 percent, with a maximum of 15 percent of business income being taxed, and different business classifications would pay the same rate. Small businesses would be taxed at 15 percent of business income.
Business owners would also see an impact with their individual taxes as the number of tax brackets reduces.
All of this is important to businesses and their owners. As they prepare for what changes could take place in 2017, many are trying to reduce their income in the current year in hopes of lower tax rates next year, Huisman says.
“A lot of companies are thinking about trying to get as many deductions in 2016 as you can and lower the income with the hope that in ’17 the tax rates would go into effect and show a higher income but pay less tax,” he says.
Ron Stallman, a certified public accountant with Short & Company, CPA, P.L.C. in Waukee, says it’s assumed Trump will first take action on lowering business and individual taxes. What this means is uncertain, but he’s advising his clients that tax brackets may be lower in 2017, so they should take as many deductions as possible in 2016. This may include charitable donations or additional mortgage payments in order to be able to deduct the interest from a business or individual’s 2016 taxes.
“It may not be as beneficial to wait until next year to take those deductions,” Stallman says.
For any company looking to sell its business, he advises waiting until Jan. 1 or later rather than trying to push the transaction through before Dec. 31.
“With everything they’ve indicated, it could be beneficial to defer taxes and any sizable transactions and create those opportunities in 2017,” Stallman says.
Businesses that operate on a cash basis may also want to defer any income they can to 2017, meaning waiting until Jan. 1 to cash checks, says Mike Gilmer, a tax attorney with the David Brown Law Firm.
Trump also has proposed repealing the estate tax, which is the tax on an individual’s right to transfer property upon his or her death. It accounts for everything the deceased individual owns and his or her interests at the time of death and uses the fair market value of the items to calculate the tax. The amount is relatively high — an individual can leave $5.45 million or a married couple $10.9 million to their heirs and pay no federal estate or gift tax — and the tax affects a small amount of people.
Some small business owners die before they make a succession plan for their business, and the business could become part of the estate, which would make it subject to the estate tax. Stallman says individuals with businesses valued over that amount need to have estate and tax planning done.
The bigger issue with the loss of the estate tax would be the loss of step-up in basis, which is the readjustment of the value of an appreciated asset for tax purposes upon inheritance. When an asset is passed on, it’s typically more valuable than what it was when the original owner acquired it. If step-up in basis is removed, the beneficiary would pay taxes on the increase of the value.
“That’s potentially bad for small businesses who want to transition or pass it on to their kids,” Gilmer says.
Overall, fewer taxes could mean more money for businesses.
“To an extent, that is putting more money in the hands of the business owner,” Gilmer says. “I think that’s wise to put that back into the business.”
Some business owners could use the money to hire employees and create jobs or to pay higher wages for current employees, Huisman says.
“It depends on the business owner and what they want to accomplish, but essentially it’s less money for the government and more money for the business owner,” he explains. ♦