Listen to this articleThe coming change in administrations in Washington, D.C., foreshadows a change in tax policy for individuals and businesses across the board. But, according to tax experts in the region, the extent, form and results of those cuts will take time to play out.
Specifically, an extension of the Tax Cut and Jobs Act (TCJA) and the posting of tariffs are looming large—but so, too, are offsets that could also play a role and impact whether the State and Local Tax (SALT) cap will remain.
“This coming year will be the ‘Super Bowl of tax legislation,’” said Jess LeDonne, director of policy and legislative affairs for the Bonadio Group, Rochester. “We’re going to see a lot happen,” she said.
Much of what does actually happen
may wind up being less new regulation
and simple extensions of existing tax provisions.
When the TCJA was first negotiated in 2017, Congress reduced the amount of state and local taxes—to $10,000—that homeowners could deduct from federal taxes—also known as the SALT cap. The SALT cap was to help pay for a reduction in tax rates for individuals and businesses; on Long Island, that also meant thousands of dollars in additional income taxes for individuals.
With the TCJA set to expire at the end
of next year, negotiations between the White House and Congress will resume on what to do next. Whether the SALT deduction cap will be renewed is riding
on those negotiations.
“The SALT cap. . . is really controversial, especially in states like New York, New Jersey, and Connecticut, where taxes are very high—both income taxes, sales tax, and property tax,” said Andrew Finkle, managing director and leader of tax quality control at CBIZ, which has an office in Woodbury.
“Tax legislation just doesn’t happen overnight,” Finkle added. “It takes time, and there’s a process that it needs to go through, and the Republicans are split with respect to the SALT cap. It’s how much deficit they want to rack up for tax cuts, and the Senate does not own a 60 percent majority, which means it has to go through a reconciliation process.”
As a result, there may also be implications for legislators in Albany to ponder.
In response to the TCJA’s SALT deduction cap, New York State enacted the Pass-Through Entity Tax (PTET) in 2021. This is an optional tax that eligible partnerships and S corporations can elect to pay on certain income
The PTET facilitates the business to pay state taxes at the entity level. This payment reduces the income reported on the owners’ personal tax returns. The owners then receive a credit on their New York state tax return for the taxes paid by the business.
Tax experts emphasize the need for businesses and state legislators to monitor federal decisions or actions closely. Any changes to the SALT cap will take time to filter through the legislative process, necessitating a longer-term tax approach.
Joseph DeMartinis, tax partner for EisnerAmper, which has offices in Melville, said that extending the federal Qualified Business Income (QBI) deduction will be particularly helpful to small businesses and suggested that individual taxpayers will be the biggest beneficiaries.
“If the TCJA expires, individual income tax rates are set to increase, and the double estate tax exemption will go back down to slightly more than $7 million per individual,” DeMartinis said. “If the TCJA is not extended, individuals will be the most hurt by the changes, especially small business owners. Corporations … will not be particularly impacted.”
“If the TCJA is extended, the most significant tax impact will likely be for small businesses and their owners,” DeMartinis said. “Small business owners will benefit from the extension of the QBI deduction as well as the lowered individual tax rates.
LeDonne noted the difficulty businesses face in planning amid unpredictable changes, particularly concerning small business provisions and green energy incentives. For those seeking immediate answers and specifics about the degree of change, the word of the day is “patience.”
But most assuredly, there will be action of some type that will have an impact.
“You can’t stop the train, and the train is the expiring tax provisions,” Finkle said. It’s just a question of whether the tracks will be extended.
DeMartinis noted that states such as New York have implemented strategies like the PTET to help mitigate federal policies like the SALT cap. “States will need to determine how they will address the PTET laws they have passed,” he said.
Beyond that, enacting steep, new tariffs will be a key point to watch. This was a plank in President-Elect Donald Trump’s platform. In particular, he promised potential across-the-board, 20% tariffs on imports, with up to 60% on anything coming from China.
Businesses that import goods could expect increased costs; those that export goods may need to hold their breath and determine whether they would face retaliatory tariffs.
LeDonne said there will likely be potential economic repercussions from new tariffs.
“There are so many potential inflationary impacts from tariffs that I think there will be pushback within the Republican Party,” she said.
Finkle described tariffs as a double-edged sword, explaining they might offset tax policy costs but could also harm businesses dependent on international supply chains.
Amid these uncertainties, experts recommend adaptability and longer-term thinking.
Tax experts agreed that the best posture is proactively providing clients with information and perspective, and ensuring their tax strategy vision extends beyond a few months.
“Think long term,” LeDonne said. “For strategic, forward-thinking businesses, it’s a time to think opportunistically about what they can do to position themselves to have the best outcome in this uncertain landscape.”