Depending on the results of this November’s election, the fiscal policy of the U.S. government could vastly change in 2025. For veterinarians, especially practice owners, now is the time to review the possible outcomes and begin planning.
The last major revision of the U.S. Tax Code was the 2017 Tax Cuts and Jobs Act (TCJA), which sought to spur economic growth by reducing Americans’ tax burden across several categories. In addition to reducing income tax rates across all income tax brackets, the TCJA created a specific tax break allowing small businesses the opportunity to take up to 20% of their qualified business income as a deduction. The bill also contained provisions that lowered capital gain taxes and increased estate tax limits.
These provisions are scheduled to expire at the end of 2025.
As the general election looms ahead, 81% of American voters cite the economy as a “very important” issue affecting their votes. For business owners, including those in the veterinary profession, this matter is particularly acute. The key to planning is being aware of each potential outcome and how it can change the way you approach your practice.
Let’s look at four fiscal policies that could change as a result of this election: income tax, capital gains tax, death tax and interest rates.
Income tax: The TCJA contained many tax cuts, including a reduction of income tax brackets, as well as a passive income tax write off for business owners. If the TCJA sunsets in 2025, all income tax filers will see their income tax bracket rates increase. This will affect both practice owners and their staffs. This can be as small as 1% and as large as 4%. Practice owners will also lose the qualified business income deduction, which will further increase your tax bill.
Capital gains tax: If you are saying to yourself, “Maybe I will just sell my practice before that happens,” then you must focus on planning now while capital gains taxes are near all-time lows—at 20%. They have gone as low as 15%, but historically in the U.S., these rates commonly fall in the 30% range. If capital gains rates were made the same as ordinary income tax rates—which could potentially happen, depending on the post-election makeup of the U.S. executive and legislative bodies—this could mean a veterinary practice that is sold for $2 million could possibly see its tax bill go up by more than $300,000. That is a significant amount of money.
“Death” Tax: The current estate tax exemption threshold sits at a little over $27 million for a couple and $13 million for an individual. This threshold is set to be cut in half with the expiration of the TCJA. Is it possible that this exemption could go even lower? The answer: absolutely.
Interest rates: As you read this article, the government is beginning to cut interest rates to spur economic growth. The majority opinion of the Federal Reserve Board of Governors is that the risk of a recession is greater than that of inflation. The initial reduction has already brought down lending rates in the veterinary industry, and future rate reductions could cause these rates to drop even further. Lower interest rates could help shift the headwinds we have seen in the transition market over the last two years to tailwinds.
To say this November is going to have a significant impact on the financial life of your practice is an understatement. With the House of Representatives, Senate and Presidency possibly landing in either party’s control there is a high probability that we will have a divided government. How this division is controlled will seriously impact new fiscal policies for 2025, 2026 and beyond.
Join Simmons & Associates’ Sean Coyle Thursday, October 24, at 7 p.m. EDT for an eye-opening discussion on how you can prepare for all the potential fiscal scenarios resulting from this year’s general election.
