What Trump vs. Harris Could Mean for Federal Business Taxes » CBIA

The following article was first posted in the Insights section of Marcum’s website. It is reposted here with permission.

The outcome of the upcoming presidential election may significantly affect the changes in federal income taxes on businesses that will be made during the next presidential term of office.

The next president’s success in passing specific legislation will depend enormously on the makeup of the next Congress.

On Nov. 5, 2024, in addition to the office of president, all 435 seats in the U.S. House of Representatives and 34 seats—of which 33 are held by Democrats or Independents—in the U.S. Senate will be up for election.

The results of those elections and the upcoming presidential election will determine whether we will have a divided federal government.

Voters are trying to figure out where the presidential candidates stand on taxes. This article considers only former President Donald Trump and Vice President Kamala Harris. Third-party or independent candidates are not considered.

Tax Positions

Harris, whose presidential campaign was launched quite recently, has not yet provided much information about her policies and proposals for changes in tax laws.

She has pledged that if elected, she will not raise taxes on anyone making under $400,000 a year.

If Harris is elected, it is possible—but not certain—that her policies and proposals for changes in federal income taxes on businesses will closely resemble those in the 2025 federal budget presented by President Joe Biden to Congress last March.

Among the proposed changes to federal business income taxes in the fiscal 2025 budget are the following:

• Raise the corporate income tax rate to 28% (from 21%)
• Raise to 21% (from 15%) the rate of corporate alternative minimum tax imposed on the adjusted financial statement income of large corporations whose three-year average annual adjusted financial statement net income exceeds $1 billion
• Expand limitation on the deductibility of employee remuneration over $1 million
• Raise the effective tax rate on foreign earnings of multinational C corporations to 21% (from 10.5%)
• Repeal the deduction for foreign-derived intangible income and redirect the tax revenues raised by the repeal to incentivize research and development in the U.S.
• Increase the nondeductible excise tax on repurchases of corporate stock of certain publicly traded corporations
• Limit deferral of gain realized on like-kind exchanges of real property to $500,000 (or $1 million in the case of spouses filing a joint return)
• Require gain on disposition of depreciable real property held for more than one year, to the extent gain doesn’t exceed prior depreciation allowed or allowable, be recaptured as ordinary income

Trump has proposed to reduce the corporate income tax rate to 20% and to tax large private university endowments.

He has pledged to cut taxes if he wins the 2024 presidential election but has not provided much detail.

Some voters believe that large corporations and wealthy individuals would benefit most from such tax cuts.

Trump has also stated that he would consider replacing the federal income tax with a national consumption tax such as a sales tax or with tariffs.

Interest Expense Limits

The federal income tax laws put into effect in 2017 set limits on the amount of net business interest expense that businesses can deduct.

They also require research and experimentation expenditures to be capitalized and recovered through amortization over several years instead of allowing for a current deduction.

Additionally, the laws subject the additional first-year depreciation (“bonus depreciation”) deduction to phase-out by the end of 2026.

One or more of those laws may be repealed and prior laws restored if Republicans retake the White House and control both chambers of Congress.

We will need to keep a watchful eye on the tax policies and tax law changes proposed by each of the presidential candidates in the months to come.

 About the author: Bonnie Wassall is a senior manager for tax and business services with Marcum LLP.