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Trump defends economic agenda, says tariffs will fuel growth

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Former President Donald Trump said his policies would inspire growth despite adding to the debt as he sought to assuage business leaders who worry his economic plans will fuel inflation.

“We’re all about growth,” Trump told Bloomberg News Editor-in-Chief John Micklethwait on Tuesday in an interview at the Economic Club of Chicago. “We’re going to bring companies back to our country.”

Trump defended his proposals to dramatically increase tariffs on foreign goods, saying the proposals were for the “protection of the companies that we have here and the new companies that will move in.”

Donald Trump during an interview with Bloomberg News at the Economic Club of Chicago
Donald Trump during an interview with Bloomberg News at the Economic Club of Chicago

Christopher Dilts/Bloomberg

The Republican presidential nominee disputed the notion his tariffs would impact Americans whose jobs depend on trade, saying the losses would be offset by new domestic manufacturing jobs.

“It should have a massive effect, positive effect,” Trump said, arguing that new trade levies would pressure companies to reshore manufacturing in the U.S. “The higher the tariff, the more likely it is that the company will come into the United States, and build a factory in the United States so it doesn’t have to pay the tariff.”

The Republican presidential nominee’s comments come exactly three weeks before Election Day in what polls forecast to be a razor-thin contest with Democratic Vice President Harris. Surveys show the U.S. economy is the paramount issue for voters.

Trump in his third run for the White House has been bolstered by broad discontent among business executives and voters at large over President Joe Biden’s record. Anxiety over high prices and jobs have left the American public preferring the Republican candidate’s approach to that of Harris, polls suggest.

The former president has vowed to carry out an aggressive campaign of deregulation, renew expiring tax cuts, lower the corporate tax rate to 15% from 21%, and offer fresh tax reductions and benefits to bolster domestic manufacturing — policies cheered by prominent Wall Street and corporate leaders. 

Trump’s tax proposals, as well as dueling tax cuts and benefits pitched by Harris, though, come with stark price tags — in the trillions — and threaten to worsen a U.S. federal deficit that’s already historically large. Some investors are betting Trump’s policies will leave the U.S. saddled with more debt and higher inflation and interest rates. America’s annual deficit is already close to $2 trillion.

Defending tariffs

Trump’s economic plan is heavy on tariffs, which he aims to impose on both U.S. allies and adversaries, including a 60% levy on imports from China and 10% duties on the rest of the world. Trump has also insisted new tariffs will help fund his tax cuts, but economists say they are unlikely to create the revenue he needs. The Peterson Institute for International Economics estimates the tariffs could raise over $200 billion a year. The U.S. took in an estimated $4.9 trillion in revenue in fiscal 2024.

The former president’s tariff agenda threatens to also reduce or redirect trade flows, further impacting revenue. Many economists have warned tariffs would hit U.S. households with what is effectively a tax increase, likely sending inflation higher and raising pressure on the Federal Reserve over interest rates.

Trump also reiterated his pledge to block the sale of US Steel Corp. to Nippon Steel Corp., if the $14.1 billion transaction was concluded by the time he entered office.

“I think it sets a horrible tone,” he said of the possible sale, saying that steel was a critical national security interest.

“There are certain companies you have to have,” Trump said.

Both Biden and Harris have said they oppose the sale of US Steel to Nippon Steel, an election flashpoint, particularly in swing-state Pennsylvania, where both the American company and the United Steelworkers union — which also opposes the deal — are based.

Trump-Putin relationship

Trump declined to say if he had spoken to Russian President Vladimir Putin since leaving office in 2021, responding to a question about claims laid out in a new book by journalist Bob Woodward.

“Well, I don’t comment on that, but I will tell you that if I did, it’s a smart thing,” Trump said. “If I’m friendly with people, if I have a relationship with people, that’s a good thing, not a bad thing. “

Woodward’s book cites an unnamed aide to the former president indicating that he spoke to Putin as many as seven times since leaving office. The Trump campaign has called Woodward’s claim “made-up stories.”

Trump defended their relationship, saying their positive ties were a boon to the U.S. and that he had cultivated connections with the Russian leader even though he had sanctioned the Nord Stream 2 pipeline between Russia and Europe.

Tight race

Trump and Harris in recent weeks have been ramping up their messaging on the economy — in particular in the seven battleground states likely to determine November’s election outcome. Harris’ entry into the race in July saw her erase much of the lead Trump held when Biden was atop the Democratic ticket, thanks to a surge in party enthusiasm for a new standard-bearer. 

But despite a fundraising advantage for Harris that has allowed her to flood the airwaves with advertising and her strong debate performance against Trump, polls show the race tightening again in the final stretch.

The 2024 race has seen Trump solidify his hold on the Republican party, easily vanquishing his primary opponents despite a slew of legal obstacles that include him being the first former US president convicted of a felony. 

With his base assured, Trump has sought to bolster his electoral appeal, reaching out to core Democratic constituencies such as Black voters and Hispanics — as well as working-class voters and suburban women — uneasy about economic mobility.

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IRS Direct File reportedly ending next year

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The Trump administration is reportedly making plans to shut down the Internal Revenue Service’s Direct File free tax prep system next year.

The Associated Press reported Wednesday about the plans, which come amid widespread layoffs at the IRS. Elon Musk had posted on X in February that he had “deleted” 18F, a digital services team that helped build the Direct File system ahead of its initial pilot test last year. The IRS staff who had taken over development of the program were reportedly told last month to end their work on developing the system for next tax season. The U.S. Digital Service that also worked on developing Direct File has been renamed the U.S. DOGE Service after a takeover by Musk’s Department of Government Efficiency. 

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 Direct File system expanded from pilot tests in 12 states last year to 25 states this year, aided by the nonprofit group Code for America and its FileYourStateTaxes project.  A survey of over 1,000 Direct File and FileYourStateTaxes users reportedly found that 98% of respondents said they were either satisfied or very satisfied with the programs, according to the Federal News Network. Last year, former IRS commissioner Danny Werfel announced plans to make the Direct File program permanent, but the program has been repeatedly attacked by Republican lawmakers in Congress and the tax prep industry.

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S corporations bring tax advantages with caveats

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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 Gelt. Binder’s firm works with high net worth clients and business owners through certified public accountants and artificial intelligence-powered tax services.

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 affect industry M&A deals, and S corporations come in handy for clients who, for example, may be elite college athletes seeking tax savings on their “name, image and likeness” payments.

Most service-based businesses do elect to be S corporations, according to Miklos Ringbauer, the founder of Los Angeles-based tax firm MiklosCPA. However, state tax rules can alter the equation significantly, he noted, citing how California charges a flat annual duty of $800 per year for limited liability partnerships regardless of their profit, compared with a 1.5% rate on the net income generated by S corporations.

“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.”

READ MORE: 24 tax tips for self-employed clients

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 the IRS, so long as they are domestic corporations, maintain a limited number and type of shareholders and have one class of stock. Today, there are about 5 million S corporations, according to the S Corporation Association, a business association and advocacy group. Before a recommendation by President Dwight Eisenhower’s Republican administration passed through Congress with the support of Harry Byrd, a Democrat from Virginia who was chairman of the Senate Finance Committee, small business owners faced “an oppressive level of tax,” a history on the group’s website stated.

“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%.”

READ MORE: Business entities affect taxes and M&A — how RIAs weigh the choice

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 for qualified business income that started with the Tax Cuts and Jobs Act in 2017, the S corporation could be a limiting factor based on the fact that the owner’s direct W-2 salary is likely to be lower in that situation, Binder noted. For some businesses that have a 401(k) or profit-sharing plan, the S corporation owners’ maximum tax-advantaged contribution can only rise to the level of their personal salary.

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.

READ MORE: 25 tax tips for RIA M&A deals and other small business sales

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 outside their expertise should engage a local certified public accountant or enrolled agent “just to make sure that everything is correct” before the client fills out IRS Form 2553 electing to be treated as an S corporation, Binder said.

“I’d highly recommend the wealth manager to partner with a competent tax professional or CPA firm,” he said.

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FAF reports on standard-setting activity at FASB and GASB

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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 PDF file and a digital, mobile-friendly version on the FAF website.

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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