Which Student Tax Plan is Best for Small Businesses? Here’s What You Should Know.

The election promises to bring more tax benefits than any other election in recent history.

It provides an opportunity to rethink the tax code, potentially making it more scalable by moving from income-based taxes to consumption-based models. Such changes can increase savings and capital investment, promoting a stronger economy.

However, some politicians seem to favor tax laws for businessmen and the rich, which shows the increasing public view of inequality and prosperity as problems that should be solved by higher taxes.

The numbers are even higher for small business owners. The outcome of this election will shape tax policies for years to come, and it is important for businesses to stay informed and participate in the political discourse around tax policy.

But first, let’s take a step back to understand how we got to this point over time.

Related: Finally, Tax Season is over. Or Is It? Here are 5 Things You Need to Do Year-Round to Reduce Tax Season Stress.

A brief history of income tax in the US

In 1913, the United States introduced an income tax, initially targeting a very small portion of the population. It was really a tax on the rich. It wasn’t until 1944 that the US increased the income tax to general wages, but even then, it was income that exceeded normal living expenses.

Fast forward to today, and the income tax has become a normal part of American life. While income taxes were rising, so were corporate taxes. In fact, less than a decade ago, the US had the highest corporate tax rate in the industrialized world.

The Tax Cuts and Jobs Act of 2017 had a major impact on both taxes, lowering most taxes and lowering the corporate rate to 21%. Most of those cuts are expected to expire at the end of 2025, giving the next White House and Congress greater influence over future tax policy.

Important points to watch

Given what’s at stake, small business owners need to prepare to engage in a robust debate about the future of the tax system.

Here are six key areas to understand:

1. Business taxes

The Tax Cuts and Jobs Act of 2017 was part of legislation signed under former President Donald Trump. Although there is some discussion among Republicans about how to reduce the budget deficit while extending tax cuts, it seems that Trump’s second term with enough support from Republicans in Congress will not increase the corporate tax rate. In fact, Trump reportedly said in June that he would like to lower the corporate tax rate to 20%.

Although Vice President Kamala Harris hasn’t shared a detailed tax policy since her Democratic nomination, based on how she’s been running her campaign so far, it looks like she’ll continue with many of the proposals of the Biden/Harris ticket. On the corporate tax front, the Biden/Harris administration has proposed raising the corporate tax rate back to 28%. Combined with federal taxes, this would once again rank the US as the place with the highest corporate tax rate in the industrialized world.

2. Encouragement

All presidential administrations use tax incentives as a means to drive their policy goals. Tax credits for having children, using daycare and caring for elderly relatives encourage the growth and maintenance of families. The tax deduction for mortgage interest encourages home ownership. And 401(k) investment deductions encourage retirement savings.

The Biden/Harris administration created massive tax incentives for electric vehicle purchases and other green energy investments, shifting the trend across industries. We are likely to see these types of incentives continue under the Harris/Walz administration. In addition, Minnesota Gov. Tim Walz is known as a big supporter of the child tax credit, helping to create the largest credit in the country for low-income people by 2023 – a $1,750 credit for each child that started out at $29,500 for single filers and $35,000 for each credit. married couples filing jointly.

Former President Trump has indicated that he would like to abandon the green energy program. Instead, we can expect that he and the Republican Congress will support the return of the 100% bonus deduction, which encourages businesses to invest in machinery, equipment and other assets.

3. Capital gains taxes

On the individual side, the Biden/Harris administration said they intend to increase the top individual tax rate from 37% to 39.6%, increase the investment tax from 3.8% to 5% and the capital gains tax on ordinary income. more. $1,000,000. This can mean that capital gains can be taxed at rates exceeding 50% when government taxes are included. Such changes could significantly affect entrepreneurs and investors who rely on capital gains for their income and could have a negative impact on the tax consequences of business sales.

4. Social security

The Biden/Harris administration has proposed raising social security taxes on business income, particularly business income earned through pass-through entities such as limited partnerships and S corporations. All business income will be subject to social security taxes, not just employment income.

5. Wealth tax

There has been a lot of talk by the Biden/Harris administration about passing a wealth tax in the form of a new separate minimum tax. While it’s clear that this is currently intended to affect people worth more than 100 million – and Vice President Harris has already accepted Biden’s pledge not to raise taxes on people making less than $400,000 a year – remember that the income tax originally only affected taxes. they are very rich. This tax, if passed and upheld by the courts, could affect many Americans in the future, just as the income tax and other small taxes made their way into everyday people’s lives.

6. Costs

Former President Trump has campaigned heavily on using taxes as a source of revenue and a basis for policy. Some of his ideas included a basic 10% tariff on all imports and a 60% tariff on imports from China. Such measures would increase costs for any small business importer while potentially helping those competing with foreign brands.

Related: Could the 2024 Election Let Employers Take Your Trade Secrets? Here’s What You Should Know.

Uncertainty of navigation

Small business owners and entrepreneurs must pay close attention as this election season continues. Understanding the nuances of each candidate’s proposed tax policies is essential to making informed decisions that can impact your business and personal finances.

A dynamic tax code reflects broad public values ​​and priorities. As the debates become more common, stay informed so you can navigate this turbulent landscape. Join the conversation, understand what is being said and use your vote.

The future of tax policy is in your hands.