As the summer moves forward, large scale tax reform looks less likely. Gaining consensus for comprehensive reform looks to be an arduous task. This is not to say that tax changes will not occur, since there are still large groups pushing for tax cuts in the near future.
However, tax cuts could lead to other issues. Multiple experts in recent months have raised questions as to whether tax cuts could stoke inflationary pressures. While wages have stagnated in recent years, unemployment is at its lowest point since the beginning of the financial crisis. The Federal Reserve has tried to balance growth with low inflation for many years and has been moderately successful. However, there is a concern that tax cuts could lead to an influx of cash, which could thereby lead to inflationary pressures. This pressure could cause the Federal Reserve to raise borrowing rates at a faster pace in the near future.
Taken together, what does this mean for your tax planning? Many powerful tax planning tools, such as Cost Segregation, can make a big impact when looking at timing differences. Timing differences are a great way to hedge against inflation. By reducing tax burdens today, you can reinvest into your company or other assets as a hedge against inflationary pressure. If inflation does occur, taking the deductions out now is that much more critical.
For example, a taxpayer with multiple assets could accelerate missed depreciation deductions into the current tax year by filing a 3115. The tax burden would be minimized this year and allow for the opportunity to reinvest available money. As inflationary pressures increase, the time value of money becomes that much more important. Even at lower tax rates, it may make sense to pull out invested money as soon as possible and hedge against inflationary pressure.
Simply looking at timing differences can illustrate why even in an uncertain tax environment, tax planning is of utmost importance. While there is uncertainty as to what taxes look like moving forward, your opportunity for tax planning has never been greater.
Can your client or business benefit from a Cost Segregation study? Please reach out to your McGuire Sponsel representative to learn more and discuss any questions or available tax planning opportunities.