Few American elections have had as much at stake as this year's, and clients have a lot on their minds concerning November.
"Inflation, interest rates, estate tax and gift tax lifetime exclusions sunsetting in 2025," said Manasa Nadig, an Enrolled Agent and owner at MN Tax and Business Services and a partner at Harris Nadig in Canton, Michigan.
"Many uncertainties regarding the direction of the U.S. economy, the current inflationary environment along with rising interest rates, prices and labor shortages all contribute," said Mark Baran, managing director at CBIZ MHM's National Tax Office in Washington, D.C. "Clients are paying close attention to how each candidate would change the Tax Code."
"[Clients'] biggest tax concerns are the expiring tax laws," said Paul Miller, a CPA and managing partner at
Four letters
Tax pros' clients, meanwhile, worry about four letters: T, C, J and A.
"Of the expiring provisions, most clients favor retention of the 20% QBI deduction for pass-through entities and proprietors, the increased lifetime estate tax exemption, as well as the lower marginal tax rates and higher standard deduction," said Mark Giallonardo, partner, tax services and tax technical director at Cherry Bekaert in Coral Gables, Florida
"I repeatedly get asked if the doubling of the estate tax exemption … will actually expire at the end of 2025?" said Daniel Rahill, a CPA, JD, LL.M., and wealth strategist with Wintrust Wealth Management in Chicago, and past chair of the Illinois CPA Society. "We have to assume that the exemption will go back to its pre-2018 [amount] because it would take Congress to proactively pass new legislation for this decrease not to happen."
"Clients would also welcome reinstatement of the two-year carryback for net operating losses and removal of the 80% usage limit," Giallonardo added. "On the other hand, clients favor allowing certain provisions to expire, such as the limitation on excess business losses, the SALT cap and the disallowance of miscellaneous itemized deductions."
"Many clients who didn't take advantage of the enhanced standard deduction under the 2017 TCJA are looking forward to the ability to deduct all the taxes that we pay in California," said Mary Kay Foss, a CPA in Carlsbad, California. "Although property taxes are relatively low here compared with most of the rest of the country, high-income taxes withheld or paid in can easily be more than $20,000."
"Wealthy folks who don't have a business are ready to deduct investment management, tax preparation, employee business expenses, legal fees and other deductions barred by TCJA," Foss added.
"In our practice, and in Washington in particular, clients and industry groups are actively mobilizing in anticipation of significant tax changes," said CBIZ MHM's Baran. "Items that already expired and have been causing significant problems for business clients include full deductions for research and experimentation and the EBITDA standard for deducting business net interest expenses; full bonus depreciation for certain capital expenses began phasing out after 2022 and will fully expire at the end of 2026. Pending legislation to address these expired provisions has stalled in the Senate."
Understanding the process
Clients need to realize how deals do and don't get made among lawmakers.
"I'm constantly reminding clients how tax policy works in the United States," said Larry Pon, a CPA in Redwood City, California. "Politicians can say anything they want to get elected [but] tax laws are written by Congress and Congress needs to pass these bills before the president can sign them into law … Even members of the same party don't agree with each other."
"A Michigan Congress member was obviously trying to appeal to pet owners when she proposed that medical expenses for your pets can be deducted as a medical expense," he added. "Some clients saw this in the news and brought copious receipts for their vet bills. I had to tell them this proposal did not come close to becoming tax law."
Everyone's starting to see that tax law can be a partisan quagmire.
"This past year the House and Senate couldn't pass proposed tax law changes," Nadig said. "That could mean that a lot of necessary changes will get pushed because elected reps can't come to a consensus."
