Project 2025: What CPAs Need to Know
Project 2025 is a 922-page document created by the Heritage Foundation, a conservative think tank, outlining a vision for transforming various aspects of the federal government. Its proposals could have far-reaching implications for CPAs, their clients, and the broader financial services landscape. Here’s what you need to know.
Drastic Changes to Tax Policy
One of the most significant aspects of Project 2025 for CPAs is its proposed overhaul of the tax system. The plan calls for:
Simplifying the tax code to just two individual tax rates: 15% and 30%
Reducing the corporate tax rate from 21% to 18%
Setting a flat 15% rate for capital gains and qualified dividends
According to the proposal, the 30% tax rate would begin "at or near the Social Security wage base," which is currently $168,600.
In the short term, CPAs would need to rapidly reassess and revise all existing tax planning strategies for both individual and corporate clients, and the simplification to two tax rates would eliminate many current tax bracketing strategies. Long term, the focus of tax planning could shift from rate optimization to timing of income recognition and deduction claiming. CPAs might need to develop new specialties in areas like consumption tax planning if the project's long-term goal of moving to a consumption-based tax system materializes.
Regulatory Changes at the SEC and FINRA
Project 2025 describes the SEC and FINRA as "poorly managed and organized" and suggests significant reforms. The plan even proposes abolishing FINRA and the Public Company Accounting Oversight Board (PCAOB), returning their duties to the SEC. Such changes would dramatically impact how CPAs interact with regulatory bodies and potentially alter audit procedures and reporting requirements.
Reshaping the Department of Labor and ERISA Guidelines
The plan calls for substantial changes to the Department of Labor and ERISA guidelines. This would affect how CPAs advise clients on employee benefit plans and retirement savings strategies. Specifically, Project 2025 suggests that the Labor Department should "consider bringing enforcement actions against BlackRock and State Street Global Advisors for their violations of fiduciary duty" in managing the federal Thrift Savings Plan. It also proposes removing any involvement of ESG criteria from ERISA's guidelines, arguing that ESG investing by plan managers is inappropriate under ERISA.
Cryptocurrency Regulations
Project 2025 seeks clarity for the treatment of digital assets, proposing that most cryptocurrencies should fall under the authority of the Commodity Futures Trading Commission as commodities rather than securities supervised by the SEC. This could significantly impact how CPAs advise clients on cryptocurrency investments and reporting.
Potential IRS Restructuring
While specific details are limited, Project 2025 hints at significant changes to the IRS. This would impact how CPAs interact with the agency on behalf of their clients and potentially alter audit processes and tax enforcement procedures.
How to Prepare for Potential Changes
While it's important to note that Project 2025 is currently just a proposal, CPAs should consider the following steps:
Stay Informed: Keep abreast of developments related to Project 2025 and its potential implementation.
Scenario Planning: Begin considering how your practice might adapt to the proposed changes, particularly in tax policy.
Client Communication: When prudent, prepare to educate clients about potential changes and their implications.
Professional Development: Focus on areas that may require new expertise, such as changes in regulatory compliance.
Looking Ahead
As with any significant policy proposal, the actual implementation of Project 2025 would likely differ from its current form. However, its existence and the support it has garnered underscore the potential for substantial changes in the financial services landscape.
We will continue to monitor developments related to Project 2025 and provide updates as more information becomes available.
Have questions yourself? Just reach out, we’d love to help.
