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What the Republican Win Means for Tax and Accounting Professionals

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Donald Trump won the Nov. 5 election, and Republicans gained control of the Senate and likely the House of Representatives. According to Thomson Reuters, with many changes anticipated under the new administration, tax and accounting professionals will need to understand what these changes will mean and adapt to the evolving tax environment.

One of the most significant changes expected under the new Republican government is a possible corporate tax rate reduction. Currently standing at 21%, there is talk that this rate can be reduced to as low as 15%. This reduction will boost business investment and economic growth, allowing corporations to hold on to more earnings. For tax professionals, this entails reassessing corporate tax strategies and telling clients  how to leverage the changes for their financial benefit.

Further, the Trump administration is expected to significantly change tariffs and trade policies. A universal baseline tariff of 10% to 20% on U.S. imports is being considered, aside from much higher tariffs on Chinese imports, potentially reaching 60%.

These changes can impact businesses that depend on international trade. Supply chains and cost structures must be re-evaluated. Tax professionals must guide clients through these complexities, ensuring compliance and optimizing tax outcomes.

Another fundamental shift is the extension of provisions from the Tax Cuts and Jobs Act (TCJA). This includes the removal of the cap on state and local tax deductions that could provide relief to taxpayers in high-tax states. Thomson Reuters reported that new individual tax exemptions and deductions are also imminent, such as the tax exemption of tip income and overtime pay, as well as a possible tax deduction for car loan interest. These changes represent opportunities for tax professionals to offer valuable strategies to clients wanting to maximize their tax savings.

Accounting Today reported that giving all the provisions could cost as much as $4.6 trillion, according to Rochelle Hodes, Washington National Tax Office principal at Crowe. Being aware of evolving proposals is crucial for tax and accounting professionals as these potential changes unfold. It calls for a commitment to continuous learning and a close watch on legislative developments.

According to Accounting Today, the Republican Party platform asked to make many TCJA provisions permanent, such as doubling the standard deduction. There is solid interest in reducing the corporate tax rate below the act's 21%. Trump also said that he was willing to rethink the $10,000 limit on state and local tax deductions enacted as part of the TCJA after there were complaints from Republicans representing states that have local tax rates.

Another major provision Trump and the Republicans are restoring is the Section 174 deduction for R&D expenditures, which is broadly popular with both Congressional Republicans and Democrats. Aside from these major issues, Trump also made some specific tax proposals while campaigning such as removing taxes on tips of restaurant and hospitality workers; taking out taxes on Social Security benefits; eliminating overtime taxes; removing taxes on firefighters, police officers and members of the military; offering a tax credit for family caregivers who take care of parents or loved ones and letting those who purchase a U.S.-made car to write off the interest on their car loans, Accounting Today said. 

To finance these tax cuts and credits, Trump said he would implement high tariffs on goods entering the U.S., although economists and others were doubting if the tariff rates he was suggesting would cover the cost, Accounting Today reported.