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How the presidential candidates’ tax plans affect small businesses

There's a lot at stake in today's presidential election. Here's what you can expect in terms of taxes after all the votes are tallied


For small business owners, the presidential candidates’ stance on taxes is an important issue – determining how much they get to keep after all of the hard work they put into building their businesses. Much depends on your income level and, of course, who wins.

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There’s a lot at stake for many Americans in today’s election.

For small business owners, the presidential candidates’ stance on taxes is an important issue – determining how much they get to keep after all of the hard work they put into building their businesses.

Given that many small business owners are already hurting because of the pandemic, many hope they won’t see a tax increase. Business owners often reinvest personal funds in their businesses. If they pay more in taxes, there is less to reinvest.

How you will fare post-election will depend to some extent on how much your household earns. That will generally be true no matter which party wins, given that tax policy tends to pick winners and losers by tax bracket.

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Biden’s tax plan

Former Vice President Joe Biden has promised not to raise taxes on anyone earning less than $400,000 a year. That means most taxpayers. Also, Biden’s plan would also boost the child tax credit to $3,000 per child and allow another $600 for each eligible child under age six, making it fully refundable.

It would increase the child and dependent care tax credit to make it cover over 50% of qualifying expenses and raise the maximum eligible deduction for one child to $8,000 and $16,000 for two or more children and make it fully refundable, as well.

However, if you are a high earner, it is worth noting he has proposed raising the top tax rate from 37% to 39.6% for people with taxable income above $400,000 per year, the level it was before President Donald Trump took office.

Earnings over $400,000 would be subject to the Social Security payroll tax, currently restricted to $137,700 of earnings. At the same time, Biden has proposed raising the estate tax, a concern for many small business owners.

As for business taxes, Biden has proposed a corporate tax increase in which the top corporate tax rate would rise from 21% to 28%.  Some experts have said this could result in lower wages and investment income for middle-class families. He would offset this for some small businesses with a 10% credit for investments in domestic manufacturing.

The Urban Brookings Tax Policy Center assumes that Biden’s tax plan would take effect on Jan. 1, 2022. It has calculated that taxpayers in the top 1% of income – those with an income that exceeds $788,000 – would pay an average of $266,000 more in taxes, or 15.9% of current after-tax income. Taxpayers with income from $50,000 to $89,000 would get a tax cut averaging $620 or 1% of after-tax income.

See related: Will a second stimulus bill help your small business?

Trump’s tax plan

The Tax Foundation has found that Trump’s 2017 Tax Cuts and Jobs Act reduced effective tax rates across income groups. It also reduced corporate taxes from 35% to 21%. The law also doubled the exemption from estate taxes so that up to $22 million of a couple’s wealth can be passed on to heirs free of federal estate or gift taxes, or up to $11.58 million for an individual.

House Republicans recently introduced a bill to extend the law, for which some provisions expire in 2025, and to add some new tax breaks, such as increasing the R&D tax credit from 20% to 40%.

President Donald Trump has proposed additional tax cuts to increase take-home pay and an expansion of Opportunity Zones, economically distressed areas to which some entrepreneurs have moved their businesses to make the most of tax incentives. The Trump campaign has not released many details of these proposals.

See related: Should you pay your taxes with a credit card?

Bottom line

What should small business owners do right now to be prepared? No one will know where they stand, tax-wise, until the results of the election are in. But it’s a good idea to keep a close eye on the headlines and to stay in touch with your accountant, in case any year-end tax planning is in order.

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