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  • Tax Reform

How Presidential Candidates Plan to Address Tax Issues


In broad strokes, Hillary Clinton would substantially raise taxes on upper income individuals; Donald Trump would lower taxes on just about everyone. These positions reflect their basic underlying views: Clinton believes some taxpayers are not paying their "fair share;" Trump believes high taxes have stagnated the economy and that lower taxes would stimulate it.

Income taxes

As with most legislation, the intent is one thing, but as the saying goes, "the devil is in the details." At this time details for the Democratic and Republican candidates' plans are lacking. Here are some general positions in their plans:

Hillary Clinton. Clinton's plan would create a small business standard deduction (the amount of which is yet to be determined). It would function like the standard deduction for individuals, which means if it is used then individual deductions for various types of business expenses would not be claimed.

Her plan would double the Section 179 (first-year expensing) allowance for investments in certain equipment and other property to $1 million (from the current $500,000). She would also increase the deduction for start-up costs to $20,000 (from $5,000) for the first year in business.

The small employer health insurance credit allows eligible companies to claim a tax credit of up to 50% of the premiums they pay for their workers' medical coverage purchased through the Small Business Health Options Program (SHOP) Marketplace. The credit would be expanded so that it could be claimed by companies with up to 50 employees; currently it is limited to less than 25 employees (full-time plus full-time equivalent employees), with the full credit only for those with 10 or fewer employees.

The cash method of accounting would be allowed for businesses with inventory and $25 million or less in gross receipts; currently it can be used only for such businesses with $10 million or less in gross receipts that meet the definition of a qualifying small business taxpayer. Larger businesses that maintain inventory must use the accrual method of accounting. Service businesses are unaffected by the proposal; they can and will be able to continue to use the cash method.

The new markets credit, which encourages investments that are expected to result in the creation of jobs and material improvement in the lives of residents in low-income communities, would be made permanent.

The proposal would simplify recordkeeping rules for the smallest businesses. More specifically, businesses with gross receipts under $1 million could use "checkbook accounting." Essentially the check register for recording revenue and expenses or a bank statement reflecting these entries would be all that is needed for books and records, eliminating the use of accounting software or cloud solutions and retaining receipts for expenses.

These small business changes would be financed by various corporate tax reforms designed to raise revenue. These include an exit tax on inverted corporations (large corporations that essentially merge into foreign corporations to move offshore) and a recapture of tax breaks from businesses that outsource jobs.

Donald Trump. Trump's tax reform proposals are not specifically aimed at small businesses. His most recent proposals call for tax simplification (reducing the current seven tax brackets to three), across-the-board tax cuts, and an end to the carried interest deduction (a provision favoring hedge fund managers) and "special interest loopholes."

He generally supports the House Republican's tax plan, which includes full and immediate write-offs for investments in tangible and intangible assets as well as the creation of a new small business tax rate (maximum of 25%) for "pass-thrus" (sole proprietorships, S corporations, partnerships, and limited liability companies). He has not commented on any specifics in the plan.

Estate taxes

Income taxes are not the only area up for an overhaul. Both candidates have strong views on estate taxes, which account for less than 1% of all federal revenues.

Hillary Clinton. She would increase current estate taxes by reducing the exclusion amount that each individual's estate can claim. Currently, the amount is $5 million indexed for inflation annually (making it $5.45 million for those dying in 2016); she would decrease it to $3.5 million, which was the exclusion amount in 2009. She also wants to increase the estate tax rate, which is currently 40%, although she's "not going to get committed to a specific approach." 

Donald Trump. He would repeal the estate tax entirely.


Which plan is better for small businesses in particular and for the country in general? It's up to you to decide.


barbara weltman

Barbara Weltman is a tax and business attorney and the author of J.K. Lasser's Tax Deductions for Small Business as well as 25 other small business books. She has been named a Small Business Influencer for five years in a row.

This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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