With Election Day about a month away… Readers are peppering us with questions on Donald Trump’s and Kamala Harris’s tax plans.
Question #1
“I’m in the midst of starting a small business. Will Harris’s proposal for start-ups help me?”
Answer
It could. Expenses in the start-up phase of a business aren’t currently deductible right away. Firms can elect to write off up to $5,000 of such costs in the first year they actively engage in business, with the rest amortized over 180 months. The $5,000 phases out dollar for dollar once total costs top $50,000. In our Aug. 29 Letter, we mistakenly said the first-year deduction is $10,000. Harris wants to increase the first-year start-up deduction to $50,000. She also calls for a simplified standard deduction for small firms, in lieu of deducting specific expenditures. No specifics yet on the amount. Harris’s proposals aren’t new. While running for president in 2016, Hillary Clinton wanted to raise the deduction for start-up costs to $40,000, and she backed a standard deduction for small businesses to take on their returns.
Question #2
“Where do Trump and Harris stand on the $10,000 SALT deduction cap? “
Answer
Taxpayers who itemize on Schedule A can deduct state and local taxes that they pay, up to a $10,000 cap. After 2025, unless Congress acts, itemizers would again be able to fully write off state and local taxes, as they generally could prior to 2018. Trump has floated axing the cap, but we don’t know how serious this idea is, given that the $10,000 limit was enacted in his late-2017 Tax Cuts and Jobs Act. His economic policy advisers stridently oppose any increase to the $10,000 figure and are instead urging him to lower the cap or eliminate the SALT deduction altogether. Trump recently vowed on social media and at a rally to restore the SALT write-off, saying people in N.J., N.Y., Pa. and other high-tax states would save lots in taxes. Harris has stayed silent so far. But it’s likely that if she’s elected president, she will get lots of pressure from congressional Democrats from high-tax states, who are clamoring for full deductibility of SALT or, alternatively, a higher cap. Here are two points to consider: Eliminating the $10,000 SALT write-off cap would disproportionately benefit upper-incomers. It would also cost the government a lot of money that the future president and Congress could use for other tax cuts.
Question #3
“Does Harris want to limit the gain deferral from like-kind exchanges of realty? “
Answer
It’s possible. When real property used in a business or held for investment is exchanged for like-kind real property, the gain that would otherwise be triggered if the realty were sold can be deferred. Harris wants to cut what she and many Dems see as tax loopholes for businesses and the wealthy. The deferral for like-kind swaps could very well be on that list. Curbing it was included in the 2025 budget proposals for President Biden’s administration. That proposal would cap the amount of deferred gain each year at $500,000 for each taxpayer…$1 million for joint filers. Gains over the $500,000 and $1 million caps would then be immediately taxed.
PLEASE NOTE; This information is intended to inform and educate not to support or promote any political party.