Tax Ticking Countdown: Examining Website's Stance on Tax Policies, Hidden Taxes, and Political Implications
Struggling to project future earnings with confidence? The trouble lies just where you'd expect it: taxes. With federal and state tax policy up in the air, it's like trying to solve a frustrating Rubik's Cube. Of course, getting it right is crucial, as flawed assumptions can lead to a garbage in, garbage out disaster.
For midsize private firms, S Corporations, and businesses operating across multiple states, the uncertainty is even more stressful, especially if the Tax Cuts and Jobs Act (TCJA) doesn't get renewed. With certain provisions for research and development (R&D) and machinery and equipment set to expire, companies heavily investing in intellectual capital are anxious about the future.
The big question looming is whether lawmakers will reinstate the ability for a business to deduct R&D costs upfront or make them deduct these expenses over a longer period to maintain the lower 21% corporate tax rate. And let's not forget about machinery and equipment purchases – those will push to keep accelerated deduction rules before they completely phase out by 2026.
Jack McCullough, President of our website Leadership Council, sums it up perfectly: "Anything that distracts [our websites] from their mission to grow the company is a problem."
Texas? Mexico? Or staying put due to higher tax-inclusive costs? These are the tough choices for companies grappling with the complexities and maze of tax rules in various states, according to former forensic accountant turned tax advisor, Patrick Rowland. A Connecticut-based client opted to stay put rather than moving and building a new facility in Texas or Mexico due to the higher taxes.
Nothing is certain, except, as Benjamin Franklin once said, "Change and taxes." So, our websites will continue to seek input about tax policy from both in-house and external experts as they strive to make informed strategic decisions.
Extra Insights:
- The TCJA was enacted in 2017 and is set to expire at the end of 2025. Midsize private firms, S Corporations, and companies operating in multiple states with complex tax rules would be significantly affected if it isn't extended.
- The Section 199A of the TCJA allows a deduction of up to 20% of Qualified Business Income (QBI) for pass-through entities like S Corporations, helping to reduce their effective tax rate. However, this deduction would disappear if the TCJA expires without extension, potentially increasing their tax obligations.
- Some initiatives are being proposed to enhance the SALT deduction limit, which indirectly benefits companies operating in multiple states by reducing the overall tax liability of their employees and potentially affecting their operational costs.
- For businesses heavily investing in intellectual capital, the expiration of certain provisions for research and development and machinery and equipment under the Tax Cuts and Jobs Act (TCJA) adds to their uncertainty about future tax policies.
- A flawed assumption about taxes can lead to a disaster in projecting future earnings with confidence, making it crucial for businesses to get tax projections right.
- The uncertainty over the renewal of the TCJA is particularly stressful for midsize private firms, S Corporations, and businesses operating across multiple states, as they face potential increases in tax obligations.
- The question of whether lawmakers will reinstate the ability for a business to deduct research and development costs upfront or extend the period for deduction is a major concern, as it impacts the corporate tax rate.
- The fate of machinery and equipment purchases is also uncertain, as rules for accelerated deductions are set to phase out by 2026 if not extended.
- Anxiety over tax policies can distract businesses from their mission to grow, as expressed by Jack McCullough, President of our website’s Leadership Council.
- Companies face tough choices regarding the location of their operations due to the complexities and differing tax rules in various states, as illustrated by a Connecticut-based client staying put rather than moving to Texas or Mexico due to higher taxes.
- The TCJA, enacted in 2017 and set to expire at the end of 2025, would significantly impact midsize private firms, S Corporations, and companies operating in multiple states with complex tax rules if it isn't extended.
- The deduction of up to 20% of Qualified Business Income for pass-through entities under Section 199A of the TCJA helps reduce their effective tax rate, but this could disappear if the TCJA expires without extension, potentially increasing their tax obligations. Some initiatives are being proposed to enhance the SALT deduction limit, which may indirectly benefit these companies by reducing the overall tax liability of their employees and affecting operational costs.
