In our last post, we began looking at some of the changes expected to occur with tax reform in the Trump presidency. As we noted, reduction of corporate income tax rate, ending taxing of overseas income returned to the United States, and implementing a border adjustment tax are all reportedly part of Trump’s plan, and these policies will impact many U.S. businesses.
Another change expected to come for businesses is full expensing of business investments. Under this reform, should it pass, businesses would be able to deduct the value of investments in new business the year the investments are made instead of over a longer period of time. The effect of the change is that it will reduce the cost of capital investments.
According to proponents of full expensing, full and immediate deduction of business expenses would have a similar effect to the government investing directly in a potion of the business, and will stimulate economic growth, particularly benefiting business in capital intensive industries.
The policy debate is multifaceted, of course, involving the question of the best way to stimulate the economy and increase employment. Opponents of Trump’s plan argue that full expensing does not make sense when tax rates are low, since lengthening depreciation schedules has traditionally been seen as the way to pay for lower tax rates. If the goal is to stimulate new investments, full expensing would, according to experts, be preferable to tax cuts, but Trump appears to be committed to both. Another question is whether full expensing should be made permanent rather than as a limited economic stimulus.
For businesses, it will be important to pay attention to the changes coming in this area, not only to do proper tax planning, but to ensure compliance with tax rules and regulations. Working with an experienced tax attorney is important to ensure full compliance and to avoid potential liabilities.