Accounting
Canada, Mexico hit back at Trump tariffs, China vows action
Canada and Mexico vowed to hit back at the U.S. after President Donald Trump followed through on threats to impose 25% tariffs on imports of their goods, instigating a trade war that’s set to reshape global supply chains.
Canadian Prime Minister Justin Trudeau said the country will impose 25% tariffs against C$155 billion ($106 billion) of U.S. goods, while Mexican President Claudia Sheinbaum also pledged retaliation. China vowed “corresponding countermeasures” to Trump’s 10% levy on Chinese products, without immediately announcing any new tariffs.
A tit-for-tat tariff fight among the world’s major economies — Trump has
“It marks a new phase of the trade war, which targets multiple countries, including allies and China, to meet US economic and geopolitical policy goals,” said Gary Ng, senior economist at Natixis SA.
Bloomberg Economics estimated that Trump’s move will raise the average U.S. tariff rate to 10.7% from near 3% currently and “deal a significant supply shock” to the domestic economy. U.S. gross domestic product would suffer a 1.2% hit and a widely watched gauge of core inflation would increase by 0.7%.
Emergency declared
In an executive order
The responses from three of America’s biggest trading partners came shortly after he signed orders for the U.S. tariffs on Saturday. The measures take effect at 12:01 a.m. on Tuesday, leaving only a small window for last-minute negotiations.
The risk of a trade war has helped fuel a rally in the dollar since Trump’s re-election on the assumption tariffs would fuel inflation and thus support U.S. interest rates, as well as the greenback’s safe-haven status.
Trump’s threats last week drove the Bloomberg Dollar Spot Index up nearly 1%, its steepest climb since mid-November. The Mexican peso and the Canadian dollar each slumped.
WTO case
China’s Commerce Ministry
Trump’s tariffs deliver on a warning to the three countries for what he says is a failure to prevent the flow of undocumented migrants and illegal drugs, though he had also teased the possibility of a reprieve if Mexico and Canada took steps to address his concerns.
The Republican’s orders also included retaliation clauses that would increase US tariffs if the countries respond in kind. The new measures will be on top of existing trade levies on those countries.
Energy imports from Canada, including oil and electricity, will be spared from the full 25% levy and will face a 10% tariff. White House officials said that was intended to minimize upward pressure on gasoline and home-heating oil prices.
Trump’s move is explosive in scale and goes well beyond his first-term tariffs. Steep tariffs will raise the cost of key goods like food, housing and gasoline for Americans, while the overall fallout threatens to spill widely across the countries, which are the largest three sources of U.S. imports, accounting for almost half of total volume.
“We’d expect big tariffs to have big impacts — and what Trump has just announced is huge,” wrote Nicole Gorton-Caratelli, Maeva Cousin and Tom Orlik of Bloomberg Economics.
Trump campaigned on a platform of extensive tariffs and he followed through, though dialing back planned measures on China while increasing them on his neighbors. Most mainstream economists and many business groups
Sweeping measures
The move represents yet another instance where Trump is testing the bounds of his emergency authorities under federal law — already a hallmark of his second term in the White House.
The tariff orders invoke the International Emergency Economic Powers Act and expand an earlier declaration to address what he calls a “threat to the safety and security of Americans.”
Markets have been gripped by uncertainty as they awaited Trump’s decision on the tariffs, and there are now looming questions about how the levies will impact stocks, as well as companies and consumers.
Automakers such as General Motors Co., Ford Motor Co. and Stellantis NV, which have global supply chains and massive exposure to Mexico and Canada, could see significant swings. Industry groups warned that because of the tight integration of U.S. and Canadian manufacturing, the imminent tariffs could have a steep impact on the industry.
“The imposition of tariffs will be detrimental to American jobs, investment and consumers,” Jennifer Safavian, the president of Autos Drive America, said in an emailed statement. “U.S. automakers would be better served by policies that reduce barriers for manufacturers, ease regulations that hinder production and create greater export opportunities.”
Trump’s actions also closed a loophole that exempted packages worth less than $800 from tariffs. Extinguishing the so-called de minimis exemption for small parcels sent to the U.S. from the three countries could significantly impact online retail — though the scope of the measure wasn’t immediately clear. While such changes would most directly affect Chinese retailers, American consumers who benefit from those platforms’ cheap goods would likely suffer, too.
The U.S. loses a tremendous amount of tariff revenue by using the exemption, a U.S. official told reporters on a briefing call.
Parts of the U.S., including the Pacific Northwest and Northeast U.S., are deeply reliant on electricity or gas flows from Canada. Under an energy emergency Trump declared on his first day in office, refined gasoline and diesel, uranium, coal, biofuels and critical minerals were all given the lower 10% tariff.
Oil industry advocates, however, have warned against even a 10% increase in the cost of crude inputs into Midwestern refineries that have few near-term options to substitute with U.S. supplies.
Democrats wasted no time in pouncing on messaging around how the trade moves could impact families’ budgets. “These tariffs will be devastating for American consumers,” Congressman Greg Stanton, an Arizona Democrat, and some 40 colleagues wrote in a Saturday
“Trump’s tariffs on Mexico and Canada will make your life more expensive,” Stanton said more bluntly in a separate
Retaliatory steps
Mexico was strident in rejecting the Trump administration’s allegation that it had alliances with drug traffickers, and suggested the U.S. government curb demand and use of narcotics internally.
“Drug use and distribution is in your country and that is a public health problem that you have not addressed,” Mexican President Sheinbaum
Mexico will also implement non-tariff measures, while calling for cooperation with the U.S. on topics including security and addressing the fentanyl public health crisis, she said.
The Mexican economy could enter a “severe recession” if Trump’s tariffs remain in place for more than a quarter, according to Gabriela Siller, director of economic analysis at Grupo Financiero Base. “If the tariffs last several months, the Mexican peso depreciation could reach record highs.”
Canada’s Trudeau said American beer, wine, food and appliances will be among the many items subject to Canadian tariffs, and his country is also considering measures related to critical minerals. He encouraged Canadians to buy locally made products and skip U.S. vacations.
The orders enacting the tariffs do create a process to remove them. Homeland Security Secretary Kristi Noem can inform Trump if the countries have taken adequate steps to alleviate concerns over migration and drugs, and the tariffs are removed if he agrees.
It’s not clear how realistic a prospect that is. Canada, for instance, already took steps to tighten its border to appease Trump, and it didn’t deter him.
In a speech Saturday night, Trudeau invoked Canada’s long history of partnership with the U.S. “We have fought and died alongside you,” he said, citing World War II, the Korean War and the recent war in Afghanistan.
Beginning of talks
“Together, we’ve built the most successful economic, military and security partnership the world has ever seen,” Trudeau said, urging Trump to partner with Canada on their shared challenges.
Although the European Union wasn’t among the targets of Trump’s executive actions on trade over the weekend, he’s often complained about what he sees as unfair treatment of American exports such as cars sold in Europe.
On Sunday, German Finance Minister Joerg Kukies cautioned against over-reacting.
“One should not react in panic to the first decision, but rather see it as the beginning of negotiations, not the end,” Kukies told German business representatives in Riyadh at the start of a trip aimed at improving trade ties in the Middle East.
The Trump administration is reportedly making plans to shut down the Internal Revenue Service’s Direct File free tax prep system next year.
The
Senate Finance Committee ranking member Ron Wyden, D-Oregon, blamed the move on lobbying by the tax prep software industry, as well as Treasury Secretary Scott Bessent.
“No one should have to pay huge fees just to file their taxes,” Wyden said in a statement Wednesday. “Direct File was a massive success, saving taxpayers millions in fees, saving them time and cutting out an unnecessary middleman that took money out of Americans’ pockets for no good reason,” Wyden said. “Trump and Secretary Bessent are robbing regular American families to pay back lobbyists that spend millions to make tax filing more expensive and more difficult.”
The
Electing to establish an S corporation could unlock the tax benefits enjoyed by millions of small business owners — as long as financial advisors and clients avoid some pitfalls.
Those include the ramifications of filing for deductions on the pass-through entity’s so-called qualified business income, the requirement of one single class of stock for the company’s equity and the implications of the S corp holding real estate, according to Tal Binder, CEO of
The caveats of S corp classification
For advisors and their clients, the S corp entity classification — named after Subchapter S of the Internal Revenue Code as a “Subchapter S corporation” or a “Small Business Corporation” — represents an opportunity with some tradeoffs.
“Instead of thinking about it as just a tax structure, think about it as a tool — it’s a tool in the toolbox when you’re doing tax planning or tax strategy,” Binder said in an interview. “The S corp has a lot of tax benefits. It just becomes more complicated as you dig into the specifics and the numbers.”
Business owners and their advisors have likely run into those challenges in any number of situations — Binder noted that professional services firms such as a small wealth management company usually make the best candidates to be S corporations. The entity classifications of registered investment advisory firms
Most service-based businesses do elect to be S corporations, according to Miklos Ringbauer, the founder of Los Angeles-based tax firm
“You have to understand the state rules first — before you look at tax structure,” Ringbauer said in an interview. “Where we shine as tax professionals is providing that value, that guidance to the taxpayers, the investors to make the right choices, to help them to decide what is the best, optimized tax structure for their operation.”
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History to of S corporations
And tax pros have been doing so for decades.
Almost 70 years ago, small business owners gained the exemption from double taxation on corporate income flowing to their personal returns to
“How significant was the creation of subchapter S?” it asked. “Consider that in 1958, the top income tax rate was 52% for corporations and 91% for individuals. That means dividends paid by a C-corporation to a high-income shareholder faced an effective tax rate of 96% Even a shareholder with median family income faced an effective federal tax of more than 60%.”
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Potential downsides to S corp entities
The savings to the owners of S corporations add up in the right circumstances, but laws and individual tax implications could call for a sole proprietorship, partnership, limited liability company or a C corporation as a better fit.
In the case of a pass-through business tapping into the deduction
As another caveat to the S corporation, certain RIAs launch when advisors team up, but one of the advisors may bring a much more substantial base of clients to the business. That would suggest that one of the owners should have more control of the firm than the other, even if they each own half of the RIA, Binder said. They couldn’t set up the business that way as an S corporation that can only have one class of stock, though.
“It doesn’t make sense, because you started it and built it for many, many years,” he said. “That might disqualify the S corp, so it’s not best in those cases.”
He brought up the additional problematic use of the structure with the idea of an S corporation RIA holding the building housing the business in the same entity, which is “the right approach” from the perspective of the general tax savings for real estate assets but “in the vast majority of cases not beneficial to you,” Binder said. The real estate could bring higher payments to Uncle Sam for an S corporation, based on the rules for tax basis and mortgage financing.
An LLC or LLP structure also provides more flexibility than an S corporation for transferring the real estate asset out of the business and into the client’s personal holdings without generating a taxable event, Ringbauer noted. From the perspective of a startup company that must take out heavy loans for capital expenses while incurring business losses in the first few years after launch, the S corporation could further cap the level of deductions — far below the amount available to an LLC or LLP, he said.
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Don’t go it alone on business-entity decisions
Unfortunately, many business owners attempt to choose their entity based on a simple online search or even a question to a public chatbot, according to Ringbauer.
“There’s a lot of incorrect information out there, which would result in incorrect guidance on how to treat stuff,” he said. “It’s a personal preference, but if it is properly guided, then the individuals who are starting the business will be able to make the right choice.”
In that vein, advisors who might otherwise avoid any mention of tax-related topics that fall
“I’d highly recommend the wealth manager to partner with a competent tax professional or CPA firm,” he said.
The Financial Accounting Foundation released its annual report Wednesday, offering an overview of its activities in 2024, especially at the two standard-setters it oversees, the Financial Accounting Standards Board and the Governmental Accounting Standards Board.
The report is available as both a downloadable
The report includes perspectives from leaders of the FAF, FASB and GASB, along with snapshots of how the teams keep stakeholders engaged. It also lists some of the highlights of 2024 FASB and GASB standards and exposure drafts on FASB projects such as recognition of intangibles and financial key performance indicators for business entities, as well as GASB exposure drafts on subsequent events and infrastructure assets. There’s also an update on the FAF’s strategic plan, plus a complete 2024 management’s discussion and analysis along with audited financial statements.
FAF executive director John Auchincloss and FAF chair Edward Bernard noted this will be their final annual report as Auchincloss will retire as FAF’s executive director in September, and Bernard’s’s term as chair of the FAF board of trustees concludes in December.
“When we assumed these roles, we inherited an organization that had a well-deserved reputation for excellence due to the experience, intelligence, and commitment of every single employee to our standard-setting mission,” they wrote. “We have been honored to serve in our roles and firmly believe in the organization’s bright future under new leadership.”
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