President Joe Biden's proposed 2024 budget contains several provisions that could impact small businesses, including raising the top capital gains rate for income over $1 million, eliminating the “step-up in basis” loophole, expanding who has to pay investment income tax and at what rate, and increasing the corporate tax rate. These proposals have been met with opposition from small business advocates who say they will hurt Main Street's ability to grow and create jobs. However, tax experts are not convinced that Biden's wish list will pass as proposed, especially given a divided Congress and the fact that many of the provisions have been floated before. The budget represents efforts to rebalance some of the cuts enacted by The Tax Cuts and Jobs Act of 2017, especially for higher income individuals.
Small business owners should be aware of what's being proposed, as certain provisions that apply directly to business operations are likely to rear their head at a later time. The proposed changes to the capital gains tax rate and the elimination of the “step-up in basis” rule could be especially impactful for small businesses, particularly family businesses. Meanwhile, the elimination of 1031 like-kind exchanges and the increase in the corporate tax rate could hurt certain small businesses. The proposed increase in the net investment income tax rate on small business income over $400,000 would also impact many small businesses that currently do not pay this tax.
Overall, the proposed changes have sparked debate and will likely be revised before they are adopted, if they are adopted at all. It's important for small business owners to stay informed and be prepared for potential changes to tax laws that could impact their operations and financial bottom line.