Hillary in the White House: A Guide to Preparing Your Small Business

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  • Business Itemized Deductions. Clinton would like to limit the cap on itemized deductions from 50% to 20%. Currently, a small business owner can deduct up to 50% on travel, entertainment and other business expenses. With a deduction of only 20%, businesses will end up declaring higher pretax incomes.
    • Family Leave Act. Clinton has voiced support of expanding the Paid Family Leave Act. If expanded to cover both parents, this will increase the income expense for small businesses.
    • Restructuring tax brackets. Hillary supports rebracketing of the tax base. Under such a move, those in the middle brackets will be forced into higher tax brackets.
    • Capital Gains. Clinton would like to see capital gains taxes increased from 20% to 24% – a 20% increase. In effect, this will reduce investment income for business owners and potentially curtail their willingness to expand their businesses. Most business owners after-tax wealth is tied up in their business.
    • The Buffet Act. Under the Clinton Administration, a surtax of 4% will be levied on individuals earning more than $5 million. For small business owners who use extra income to reinvest back into their businesses, the Buffet Act would reduce working capital.
    • The Death or Inheritance Tax. Hillary supports increasing the inheritance tax to 65% above the spousal deduction of $1.5 million. As an example, business worth as much as $2 million would face a 65% tax rate on $500,000 transferred to next of kin.
    With this policy backdrop, here’s what you need to do to keep your small business competitive in these potentially challenging times:
    1. Preserve Capital. Free cash flow will be affected, so be careful about how you grow your business and how you access the equity and debt markets.
    2. Pre-Tax Income Reduction. Reduce your expenses as much as possible while continuing to grow revenue. This will help lower your tax base.
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