The possibility that estate tax exemptions in the US could be extended rather than sunset, and other tax changes, are discussed by a major accountancy and professional services firm.

US estate tax exemptions and what is called the qualified business income deduction (QBID) are two of the most important topics for wealth advisors to watch as the Trump administration takes office in January, an accountancy firm says.

The Republicans’ victory on 5 November makes it more likely that the estate tax exemption, of $13.61 million, will be extended rather than sunset in 2025, Jill Bosco, chief tax officer at CliftonLarsonAllen, said when trying to set out what the advisory sector is expecting. Bosco spoke to this news service, stressing the usual caveats about the uncertainties of politics. (Her views, she said, are not an endorsement of any specific policy.)

“The Republicans’ success increases the likelihood that the TCJA provisions scheduled to sunset next year will be extended. The expectation is the lifetime estate and gift tax exemptions would be included in a TCJA extenders package,” Bosco said. (She referred to the Tax Cuts and Jobs Act of 2017.)

As for the QBID, it is a “critical tax issue to monitor,” Bosco said. 

The QBID allows eligible business owners to deduct up to 20 per cent of their qualified business income on their tax return. 

“This deduction can significantly reduce taxable income, but its future is uncertain as the TCJA provisions are set to sunset. Advisors should stay informed about any changes to the QBID, as its continuation or elimination could have substantial impacts on business income taxation,” Bosco said.

In the immediate weeks after the US elections, which have seen the Republicans take the White House, hold the Senate and take the House of Representatives, there is speculation about tax policy on a number of fronts. Before the poll, there had been thoughts about what the Democrats, for example, might do, if re-elected. 

Temporary
“One concern we have is the temporary nature of these tax bills. The TCJA was passed in 2017 under a procedure known as budget reconciliation and this procedure likely will be used again in 2025,” Bosco said. “Budget reconciliation is a very complex legislative procedure that allows the Senate to pass a tax bill by a simple majority, rather than the standard 60-person majority (the House follows the simple majority approach).”

The procedure often requires Congress to agree on how long a tax break will stay in existence to avoid creating budget deficits for an undetermined period, she said, noting that it is common for bills passed under budget reconciliation to sunset after five, seven or maybe 10 years. 

“As you can imagine, sunsetting tax laws can cause anxiety to clients who are trying to plan their future,” she said. 

“Another area of concern is the economic implications of continuing to fund tax breaks through budget deficits. Although we are not economists, we do wonder whether significant federal budget deficits will cause interest rates to continue rising and, if so, whether increased rates will hinder US consumer spending and business expansion,” Bosco said.

This publication asked Bosco about American Citizens Abroad, an advocacy group, noting that the Trump campaign was interested in how the worldwide nature of the US tax code can impact expats. This week, ACA said it had launched a “100-day campaign” aimed at enacting Trump’s pledge to end the onerous double taxation of US citizens living and working overseas. (ACA has called for the US worldwide system of tax to be replaced by a territorial one, as is the case with nearly all developed countries.)

Bosco said the expat double taxation issue is not a TCJA provision and likely has limited impact on Trump’s voter base, which may affect the likelihood of change.

“Consequently, this could make it more likely that Trump may relent on the expat double taxation issue if Congress pushes back on the rising cost of a tax bill,” she said. 

There are topics that can fly under the radar. 

“One area of tax law that does not receive a lot of attention outside of the tax press is IRS international taxation of US businesses,” Bosco said. “The minimal coverage in mainstream media is largely attributable to the complexity of international tax law and the limited applicability to the average voter. As part of Trump’s 'America First' policy, we likely will see incentives for investing in America.”

“These incentives could range from reduced corporate income tax rates on domestic manufacturing and immediate expensing of domestic R&D expenses, to refunds of tariffs for foreign companies that move their manufacturing operations to the US,” she continued.

“It is conceivable that Trump and Congress may want to take this a step further by raising taxes on companies that maintain significant untaxed or low-taxed earnings offshore. This is purely speculative, and we haven’t seen a lot of formal commentary on this topic, but it could become part of the conversation if Congress feels pressure to raise revenues to offset the cost of the TCJA extenders,” Bosco added.

In its statement this week, American Citizens Abroad urged lawmakers to adopt residence-based taxation.

“Having previously demonstrated that adopting RBT is revenue neutral, ACA will work with its thousands of individual members and a broad, bi-partisan coalition of incoming Administration officials, Congressional representatives, legislative staff, tax experts, and economists to finally achieve this goal when the Tax Cuts and Jobs Act (TCJA) is brought up for renewal,” ACA said in a statement.