Former Vice President Joe Biden is the perceived winner of the election with running mate Kamala Harris, although numerous recounts have been requested in key battleground states as well as some potential lawsuits which were filed by the Trump administration.
Election fatigue is real, and although we are feeling it too, it is important to understand how a potential change in office could impact your business. Staying up-to-date and prepared is the best thing small business owners can do to protect their business given the uncertain market and business landscape. Below we have highlighted 7 changes that could take place given a change in office.
Changes in Corporate Tax Rate
President Donald Trump passed the Tax Cut Jobs Act in 2017 which reduced corporate income tax from 35% to 21%. President-elect Joe Biden is likely going to reduce the impact of some of the TCJA’s changes. His administration has made remarks to pursue an increase in the federal corporate income tax from 21% to 28%, which was also the rate proposed by the Obama administration in both 2012 and 2016.
Although it is clear that businesses benefit from the infrastructure of a country and there are equitable, practical and political reasons they should pay taxes, high corporate tax rates reduces investment and economic output.
The best thing you can do for your business is be prepared. Put in the time to plan and strategize for how potential corporate tax rate changes could impact your business, and devise a game plan with your CPA or tax consultant. If you take the time to understand new tax laws, your tax strategy will be ever-changing and improving instead of just worrying.
Stimulating the Economy
Joe Biden plans to move fast on the pandemic and the economy. Mr. Biden’s platform on small businesses calls for reforming the PPP, including strengthening oversight of the program, creating a new investment fund and broadening provisions for minority-owned businesses.
President-elect Joe Biden proposes expanding small businesses’ access to capital through an initiative called the Small Business Opportunity Fund. The fund would receive $30 billion in initial federal funding and make investments, including directing $10 billion to state and local programs that provide venture capital. Additionally, the plan would extend the eight-week limitation so that payroll forgiveness continues for the duration of the crisis, this would provide flexibility to allow businesses to decide when the covered period begins.
This plan could guarantee that every qualifying small business will get relief, rather than capping the fund in a way that forces small firms to compete against one another.
Increased Spending on Defense & Infrastructure
Small Business May Benefit from Increased Spending on Defense & Infrastructure
Joe Biden has been on record supporting increased funding for the military and investing billions in the country’s transportation and utility systems. If funding is approved, small businesses who are players or have customers in the defense, utility or construction industries may very well enjoy a Biden presidency.
Employment Costs May Continue to Rise
Increased competition in the low-unemployment economy means many small business owners are challenged not only to find good people but to compensate them fairly. Under the Biden administration, small business costs could dramatically increase as the candidate supports a $15 per hour national minimum wage, mandated paid time off, increased union negotiating power, elimination of non-compete agreements for workers, and a reboot of how companies treat and classify independent contractors compared to employees. These changes could mean a higher cost of wages and paid time off for small businesses, although Biden hasn’t specified if all of his proposals would apply to smaller organizations.
Relations with China
Biden will face pressure to maintain protections for vulnerable industries, such as steel and aluminum. His top economic priority will be to revive the economy which was slammed by the coronavirus pandemic, so trade agreements will likely take a back seat to stimulus efforts and infrastructure development.
Most U.S. citizens agree that doing business with China can be difficult and sometimes even unfair. Trump has not had major success in fixing this problem, but at the end of the day, American businesses want to do business with with a country that has such an enormous market and infrastructure, and the playing field can be leveled. Biden’s approach will be predictable and no worse than anything tried in the past.
Increase in Capital Gains Tax
The Biden Administration proposed tax plan includes raising long-term capital gains tax rates on dividends to 39.6% for those making more than $1,000,000 or more a year. That would result in the biggest hike in capital gains taxes in history, from a current 23.8%.
A 2010 paper from the congressional Research Service noted the behavioral responses to changes in capital gains tax rates as a “lock-in effect,” imposing “efficiency losses because investors may be encouraged to hold suboptimal portfolios.” This could result in market inefficiencies, as investors will hold onto a stock for tax reasons rather than selling it and buying a better one.
Increased Payroll Taxes
The Biden administration also proposed to impose payroll taxes on income above $400,000. For business owners who draw a salary, this means paying an additional 6.2% in tax on top of the 39.6% marginal rate. For business owners and other self-employed people, both the employer and employee side of the tax must be paid, resulting in an additional 12.4% in tax on top of the 39.6% marginal rate.
Exemplar’s Professional Team Can Help Your Business Navigate Change
Exemplar’s team of over 50 professionals nationwide is equipped to help your small business with potential tax and legal changes that may result from the 2020 election. Chat with us here to discuss how this might impact you today!
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