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How Tax Outsourcing Looks Like After Donald Trump’s New Tax Plan?

Last updated: 19 May, 2021 By | 6 Minutes Read

The new tax plan initiated by Donald Trump, the president elect of USA is expected to generate wide impact. The people belonging to the rich category like well established businessmen are expected to be the most affected by this plan.

Dollar being the reserve currency of the financial world enables the United States to constantly evolve its tax system. The taxes in US constitute only 18% of the GDP which is very low in comparison to other western countries.  The government is not dependent on the taxes for income, it can generate as much currency as it desires.

There are times when government takes the decision to redeem currency flow and prevent asset bubbles. The budget rules which are formed by the government make it compulsory that the tax cuts are paid for by offsets.

Many detractors have labeled Donald Trump as inflation president but there is definite indication that the new tax plans will lead to serious inflation.

This plan is mainly meant for growth with tax cuts for rich businessmen. This plan is expected to pump in $4-6 trillion into the US economy in a span of ten years. These tax cuts are not expected to have a huge macroeconomic effect on the US economy.

Due to these tax plans, the consumption in the economy has come down. The recently subsidized businesses would require customers for better investments.  The people with a high marginal propensity to consume will be hampered by this plan.

The Trump business tax plan is a novel concept. The president elect plans to limit the corporate income tax rate to 15%. He might also propose an elective tax determination for partnerships which will enable the owners to benefit from this rule. An imputed deduction for salaries can be levied in this regard. But it is not yet clear whether each plan will have an entity-level tax or not.

Many critics are raising doubts regarding the fairness of this system. The business owners will be allowed to choose between net interest deduction and expensing of equipment. The manufacturers might have to pay a VAT-like cash flow tax.

The cash flow tax is likely to be imposed like a subtraction method VAT in different industries. The capital equipment expenditures will be deducted in full. Intellectual property, research and wages costs will be spared to some extent.

The cash flow tax with a deduction would be applicable for domestic wages.  But there will be no deduction on foreign wages. An exporter might be able to enjoy zero tax liability.

The House Republicans are proposing the implementation of European territorial dividend exemption system for the advantage of popular businesses like Apple, Google, and Big Pharma etc. But Trump has not approved this system. But it is expected that these companies will be allowed untaxed deferred foreign income to shareholders at lower rates. Trump has proposed repatriation at a 10% rate for cash and 4% for earnings not in the form of cash.

The First 100 Days: Trump’s Tax Plan

In the plans developed by Trump, there is not much scope for middle class Americans who are aren’t paying huge amount of income taxes but pay payroll taxes which remain the same. The estate tax, Obama care taxes and the special 4% add-on tax substitute for Medicare taxes might get repealed.

As far as child subsidies are concerned the child credit is nonrefundable to poor parents. It is expected that Trump would offer a nonrefundable above-the-line deduction for up to $5000 of child care expenses. $2000 per child may be contributed for a child care scheme annually.

In the last decade the demand for tax outsourcing has enhanced rapidly among accounting firms. The main reasons behind this phenomenon are better efficiency, client service and employee retention.

The efficiency is enhanced as the workload on the employees can be reduced during the peak-season. This helps in reducing the unnecessary work pressure on the employees.

The offshore tax outsourcing can significantly reduce the costs incurred by firms as there is a huge difference between the wage rates in nations like U.S. and offshore service providers based in nations like India, China, and Argentina etc. So the accounting firms based in US can reduce their operational costs considerably.

The client service also gets enhanced in at least two ways as the business outsourcing firms offer a quick turnaround time due to the difference in the time zones of developing nations like India, China, and Argentina etc. Obviously clients would be happier if they receive the allocated tasks earlier. Secondly the outsourcing firms have access to proficient staff that is capable of providing high quality services.

Tax outsourcing encourages paperless workflow technology as documents are submitted by a CPA firm to its tax outsourcing service providers electronically. After the completion of the task, the documents are returned back by the outsourcing service provider.

The outsourcing firms are also well known for maintaining satisfactory security standards while dealing with the data of their clients. Most of the outsourcing firms follow the right steps required for ensuring the security of the client’s data.

The new tax plans is going to certainly help the ultra rich more than middleclass people but it is not going to affect the outsourcing tax preparation services much as the CPA firms based in USA will continue to be overloaded with work and they will outsource some of their work to outsourcing firms based in developing nations to ease the work pressure of their employees and the other factors which have been already discussed in this article.

Recommended Post: 5 SMALL BUSINESS TAX PREPARATION TIPS TO REMAIN AHEAD OF THE CURVE

Among the best outsourcing companies, Cogneesol offers tax preparation services to business ventures all over the world. Over a period of time it has created a niche for itself in this field. These services are meant for enabling the business organizations to concentrate on their core activities, reducing operational costs and maximizing profits. They have access to proficient staff and latest technology for performing the tax preparation tasks. To know more, contact us at info@cogneesol.com or call us at +16466882821.

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