With shifting tax policies and political uncertainty, strategic tax planning is more crucial than ever for tax professionals
The only constant is change — by far a quote that could be the subtext to the tax industry. Tax policy is constantly being changed or amended. And it is probably one of the most weaponized talking points by politicians to distinguish themselves and appeal to their own supporters or sway their opponents’ supporters.
In a recent webinar, Shaun Hunley, Executive Editor of Thomson Reuter Checkpoint, along with Daniel Winnick, a principal at KPMG’s Washington National Tax Group, discussed how tax professionals should position themselves and their clients for potential changes (large and small) as we approach a pivotal election.
The current tax landscape & expiring provisions
To begin with, regardless of who sits in the White House beginning in January 2025, they will have to address the possible looming fiscal cliff based on the sunsetting of some of the Tax Cuts and Jobs Act (TCJA) tax provisions that are set to expire at the end of 2025. TCJA, the most significant overhaul of the tax code in modern history, introduced numerous expiring provisions that could impact both individuals and corporate taxpayers, unless these expiration dates are extended.
For individuals, according Hunley, the reduction in tax rates and the doubling of the standard deduction under the TCJA were significant changes. If these provisions expire, taxpayers could face higher rates and a return to lower standard deductions, leading to increased tax liabilities. In addition, the Qualified Business Income (QBI) deduction, a vital provision for pass-through entities, is also at risk. Huntley noted that practitioners have spent years mastering this deduction, and its potential expiration could disrupt tax planning for many businesses. Additionally, the $10,000 cap on state and local tax (SALT) deductions remains a contentious issue, with both parties expressing interest in either lifting or modifying it.
For businesses and corporations, Winnick states that the expiring TCJA provisions are only one of the many challenges over the past decade, as tax policy has undergone extraordinary changes, both domestically and internationally. This constant evolution requires tax professionals to adapt swiftly, often dealing with retroactive changes during filing seasons.
The role of political outcomes
Today’s election, not surprisingly, will play a significant role in shaping future tax policies. Regardless of the outcome, Congress will need to address expiring provisions to avoid significant tax increases for taxpayers. However, the specifics of any legislative changes will depend on which party controls the White House and Congress and, if it’s a divided government, how they will work together. Winnick pointed out that a divided government could lead to prolonged uncertainty, potentially delaying legislation until 2026.
Strategic planning amid uncertainty
Given all of the potential tax uncertainties on the horizon, tax professionals need to do strategic tax planning for their clients or company, now more than ever. Both Hunley and Winnick emphasized the importance of proactive communication with clients. Indeed, they said, tax professionals should educate themselves about potential changes and model various scenarios for their clients. This can involve using client data to identify those clients most affected by potential changes and provide tailored advice.
These experts suggested that by leveraging technology for data mining and modeling, tax professionals can present clients with different outcomes based on an array of possible legislative scenarios. This proactive approach not only prepares clients for potential changes but also positions tax professionals as trusted advisors.
Opportunities in challenges
The possible legislative changes could feel daunting; the unknowns, the potential knowns, and how it all will impact clients could make some tax professionals feel like closing up shop and hiding under a rock until things blow over. While this may be one way to look at things, it’s possibly not the most effective. You, as a tax professional, still need to make money, and your clients will most likely need you more than they did back in 2017 when TCJA was enacted.
However, those tax professional who can see the opportunities in these uncertainties, really have an opportunity to demonstrate their value. By staying informed and proactive, tax professionals can offer their clients advice to help them plan for and, in some cases, maximize the advantages of their tax position.
Hunley encouraged tax practitioners to view legislative changes as an opportunity to engage with clients, showcase their expertise, and expand their advisory roles. This approach not only helps clients navigate uncertainty but also positions tax professionals as indispensable partners in strategic planning.
Conclusion
The insights shared by Hunley and Winnick in a recent on-demand webinar highlight the importance of preparation and adaptability in the face of uncertainty. By embracing these principles, tax professionals can turn challenges into opportunities, ensuring that they remain valuable partners to their clients in an ever-changing tax environment.
As today’s election will make clear, all tax professionals must engage in strategic planning because the tax landscape will continue to be shaped, shifted, and influenced by politics. A tax professional who is informed, proactive, and adaptable is one who can survive and thrive during the coming months of changing tax regulations and tax policy uncertainty. By leveraging technology, modeling various scenarios, and maintaining open communication with clients, these proactive tax professionals can navigate the complexities of any tax policy changes effectively.
For more insights from Hunley and Winnick on what tax professionals should consider and do, check out the Strategic tax planning in a changing political landscape webinar, here.
