But how much those changes will be and when they would take effect remain to be seen.
“It’s all up in the air,” said Richard J. Nelson, director of tax strategies at Kreischer Miller, a Horsham-based accounting firm with an office in South Whitehall Township. He spoke to an audience of business and tax professionals this morning at Hotel Bethlehem at the firm’s presentation on the post-election outlook for business taxes.
While there has not been a major tax reform since President Reagan’s 1986 Tax Act, businesses should expect to see some changes to the federal tax code, probably in 2017, Nelson said.
Since that law was passed 30 years ago, tax law has gotten more complex but is not corporate-friendly, he said. In 2015, only six of the 20 largest global companies were headquartered in the United States, compared to 17 of the 20 largest headquartered in the U.S. in 1960, he said.
Although everyone would get a tax cut under Trump’s plan, the wealthy get the largest cut; 7.3 percent of those in the top 0.1 percent compared to 0.6 percent of the poorest individuals in the lowest quintile.
“A lot of Trump’s plan is geared toward the wealthy,” Nelson said.
While Trump’s plan and the House GOP’s so-called Blueprint plan are similar – both would increase the deficit – there are differences.
People earning $112,000 would fall into a 33 percent tax under Trump’s plan compared to the $190,150 threshold in the Blueprint plan. Taxes on capital gains, dividends and interest income also differ, with Trump proposing a 0 percent, 15 percent and 20 percent tax, respectively, and the Blueprint proposing 6 percent, 12.5 percent and 16.5 percent, respectively. Trump would eliminate head of household status; the Blueprint would retain it.
Nelson noted there are tax opportunities, such as the Interest Charge Domestic International Sales Corporation (IC-Disc) for companies that do business outside the U.S.
Federal tax changes will have some effect next year on individual and business taxes on the state and local level, said Thomas M. Frascella, director of tax strategies and state and local tax group leader at Kreischer Miller.
In Pennsylvania, tax collection estimates are down for the year in several areas: corporation tax collections by nearly 10 percent; sales tax collection down nearly 3 percent; personal income tax estimates down 2 percent; and realty transfer tax collection estimates down nearly 13 percent.
Frascella said they expect to see more sales and use tax audits because of these reduced tax collections, especially regarding increased scrutiny of exemptions, such as for manufacturing; validation of exemption certificates, such as tax-exempt organizations and resales; full reviews of capital assets; and an expanded scope of expense sampling.
There may also be more delayed personal income tax refunds because of more reviews of taxes, and delays in processing credits, such as the earned income tax credit.
Additionally, independent contractors are considered a “tier 1” audit issue, and businesses are encouraged to review existing contracts to make it clear that they are not employees.