President Donald Trump ran on a firebrand political agenda that promised to shakeup everything about U.S. politics as we know it—from immigration and defense to healthcare and the tax code. While the Trump administration has come up short in delivering on some of his promises (like reforming the Affordable Care Act and his controversial travel ban), he certainly has lived up to a number of his campaign pledges—including his reformed tax code.
Donald Trump ran as the pro-business candidate, and after months of rhetoric, the President has unveiled his official proposal for the new U.S. tax code. Trump’s tax plan is vastly different from that of his predecessor, and is sure to have big implications for your small business. Check out all of the need-to-know details below:
Trump’s Tax Ideas
In short, Donald Trump’s tax plan is to simplify, deregulate and lessen the taxation of America’s business and industrial sectors. His proposal, if enacted, would introduce seven key changes:
A Three Bracket Tax System—currently, there are seven tax brackets for taxing income. But, the Trump administration has proposed a simpler, three bracket setup, at 10% (for the poor and the working class), 25% (for the middle class) and 35% (for the upper middle class and rich).
No More AMT—otherwise called the alternative minimum tax, the AMT was a measure emplaced to prevent the super-rich from dodging their tax responsibilities. Trump has planned to do away with it, altogether.
Double Deduction—Trump’s tax policy doubles the standard deductible from their taxable income. The logic behind this move is that the higher deductions will simplify tax returns and, hopefully, leave the average taxpayer with some more money in his/her wallet.
Killing the Death Tax—the “death tax,” or perhaps more judiciously known as the “inheritance tax,” was implemented in 2014 and taxes the estates that the deceased bequeath to their heirs. The Trump administration claims that it hurts America’s working class—the tax, after all, cuts down on the inheritance of even modest families, who could use every penny of their loved one’s assets. Critics of Trump, though, will likely jump on him for this proposal; suspicious of his character, they will wonder if this isn’t a law devoted to helping the national elites pass their money more efficiently from generation to generation.
Reducing the Capital Gains Tax—Trump plans to cut the capital gains tax from 23.8% to an even 20%. This reform takes the capital gains tax back to its pre-ACA rate and is closely linked to his broader call to end Obamacare.
Keeping Deductions for Charity, Mortgages only—while wishing to eliminate all individual deductions except for those pertaining to mortgages and charity, many are worried that this will be a redundant confusion in the process considering he is already planning a double deduction system.
Slashing the Corporate Rate—the biggest winners in the Trump tax proposal would be business owners. The tycoon-turned-president wants to cut the corporate tax rate from 35% to a mere 15%. While such a reduction would greatly lessen the national tax revenues, the administration hopes that a liberal economy will spark investment and overall growth (which would compensate for the loss in tax revenue).
Perhaps the most controversial of the White House’s tax proposal is the loose policy surrounding so-called pass-through entities. A pass-through entity is a company that pays its taxes through its owner’s income taxes, rather than being taxed directly—think of it almost as if the business owner becomes the company, in the eyes of the IRS. Donald Trump’s own company is set up this way, as are countless others nationwide.
Trump’s proposed cut of the corporate tax to a mere 15% encompasses these pass-through entities. So—as a small business (or a large business) owner, you could, in theory, change your corporate structure and register as a pass-through entity, reducing your personal income tax to the corporate level of 15%.
Implicitly, unless the verbiage of his proposal is tweaked, the Trump tax plan would offer all business owners a route to reduce their personal income tax to only 15%. The idea is highly controversial—many do not like the blurred distinction between corporation and person. Others are upset that the country’s wealthiest members will be able to walk away with a far larger payday thanks to a loophole in the legislation. For entrepreneurs and business owners, though, it would prove advantageous. Rather than paying taxes on personal income and corporate income, one would be taxed once—and at a much lower rate.
The Trump tax plan has shaped out as one could’ve expected it to—business owners and large corporations walk away the winners, as massive tax cuts would let them keep a larger share of their profits. The losers, in this case, would be those who rely on the preexisting tax revenues to fund social programs. The era of “Trumponomics” has yet to be codified, though, as his tax plan must pass through Congress and inevitably undergo a series of changes.
As Congress and the White House debate over the new tax code for the country, it is important that you keep up with the news—depending on how it boils down, you may be able to find a loophole or an uncommon path to saving tons of money. But, as a small business owner, you do not need to find some obscure loophole in the tax code or have a phenomenally creative accountant in order to save tons of money. All you need is invoice factoring. Invoice factoring is a method of alternative finance for small businesses that is perfect for startups and small outfits that are looking towards expansion. Invoice factoring is a debt-free procedure and any business can qualify for it—regardless of credit. Give Factor Finders a call today, start saving your money and keep an eye on the Trump tax plan as it matures. There is a lot of potential for raising profits in the coming months!