OPINION:
Small-business owners face a tough choice this election year. But one thing is for sure: if Vice President Kamala Harris is elected president and has congressional support, most small-business owners — including me — will see our tax bill almost double.
That’s because of three big changes: an elimination of one tax deduction, a cut in another and a doubling of tax rates.
The first big change relates to the qualified business income tax deduction, or — as many of us like to call it — the small-business pass-through deduction. This deduction began in 2017 with the Tax Cuts and Jobs Act, or TCJA. Most small businesses file a “pass-through” tax return, such as an S corporation or partnership. Under this scenario, whatever income we make in our business passes through to our individual income tax return and is taxed at that level.
The deduction allows most small businesses to then take a 20% deduction from whatever income their business made before the income passes through to our individual returns. That deduction expires after 2025. Despite pleas from business groups and legislation introduced in Congress, Ms. Harris has shown no inclination to extend it or make it permanent. It will simply go away.
The second biggest deduction we lose is the standard deduction. Thanks to the TCJA, a married couple filing jointly can — assuming their itemized deductions aren’t higher — immediately take this deduction against their taxable income on their individual return. This automatic deduction is $14,600 in 2024. After 2025, when it also expires, the deduction will be cut in half to $7,300.
Another big thing that people seem to ignore is tax rates. With the expiration of the TCJIA, tax rates would likely revert to levels that we saw in 2016. In many cases, those levels were twice what we’re paying now.
So how does this all play out? Let’s do the math.
According to the financial resource site Bankrate, the typical U.S. small-business owner earns from $83,000 to $126,000 annually. In 2024, that business owner would take a 20% deduction on those earnings using the business income tax deduction, so — assuming a middle ground of $105,000 — the income that would pass through to their individual tax return would be $84,000. The business owner — assuming he or she is married — can then take the $14,600 standard deduction, reducing their taxable income to $69,400. Assuming no other income or deductions, taxes due at current rates of 12% would be $8,328.
Once the qualified business income tax deduction goes away, however, the business owner’s full $105,000 income will flow through to their tax return after 2025. Because the standard deduction will also be cut in half to $7,300, taxable income would be $97,700.
One piece of good news is the return of the personal exemption, which for a married couple was $4,050 in 2016, the year before the TCJA, so adjusted taxable income would be $93,650. Using the 25% — yes, 25% — tax rate that was in effect in 2016 (when the TCJA expires, rates would return to pre-2017 levels), that business owner’s taxes due would be $23,412.
In short — and as of this writing — a small-business owner’s taxes in 2026 would be $23,412, compared with $8,328 in 2024, a $15,084 — about a 180% increase.
A lot can happen in the next two years. Tax rates may be negotiated. Ms. Harris may have a change of heart on the business income tax deduction. And again, I’m ignoring other deductions and credits that may or may not be available — state and local tax, earned income, child care, etc. — to keep things as simple as possible. The bottom line is that a business owner would pay almost twice as much in taxes.
Ms. Harris has previously announced certain initiatives targeted at small-business owners, the most significant being an increase in the tax deduction to as much as $50,000 for startups. This is great. But it doesn’t address the significant tax increase small-business owners face if she becomes president and has congressional support.
It’s also worth noting that these taxes are due based on a small company’s taxable earnings, regardless of whether said earnings have been spent or invested in new property, working capital or employees. A pizza shop, landscaper or small manufacturer usually reinvests any extra cash in raw materials, equipment or other business expenditures. Few are taking the cash and buying Lamborghinis. But the taxes are still due, even if the money is not there because it’s been used for other purposes, business or not.
If you’re a small-business owner, I understand that there are plenty of reasons to vote for either candidate, reasons that go beyond your pocketbook. But if you take taxes in isolation, the verdict is clear: Small-business owners will pay much more under a Harris administration.
• Gene Marks runs The Marks Group, a financial and technology consulting firm near Philadelphia.
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