What Rising National Debt Means for Business Owners and High-Earners in the DMV Region
Key Takeaways:
The U.S. national debt is nearing unsustainable levels, putting pressure on future tax policies and interest rates.
As interest payments grow, business owners and high-net-worth individuals could face higher taxes and reduced deductions.
Long-term estate and tax planning strategies must adjust to account for fiscal policy shifts.
Owners of LLCs, S-Corps, and partnerships may see increased scrutiny and regulation to collect more revenue.
Proactive legal planning now can help safeguard business operations, wealth, and long-term goals.
The U.S. national debt has successfully crossed $38 trillion—and is still climbing. While headlines often focus on the economic implications at a macro level, the consequences at the individual level, especially for business owners and high-net-worth individuals in Maryland, Virginia, and Washington, D.C., are equally significant and much less discussed.
If you're an LLC owner in Maryland, a partner in a Virginia practice, or managing your family's estate in Washington, D.C., the rising debt affects you more directly than you might think. The growing fiscal burden is shaping policy decisions around tax reform, business regulation, and estate planning—all areas where strategic legal guidance is more important than ever.
In this post, we explain what the trajectory of national debt means for your financial and legal planning, and how you can position yourself wisely in response.
Understanding the National Debt—and Why It Matters
Let's start with the basics.
The national debt represents how much the federal government owes to creditors. It's the result of the government spending more than it collects in revenue, year after year. While some borrowing is necessary and economically justified—such as in times of war or recession—our current debt pattern is structurally unsound.
The Congressional Budget Office (CBO) projects that without substantial reform, government borrowing will continue to grow faster than the economy itself. That means we're not just accumulating debt; we're doing so at an accelerating pace with no clear plan to reverse course.
Why should business owners and professionals care?
Because rising interest payments—owed on a growing mountain of borrowed money—will increasingly crowd out other budget priorities. To offset this burden, the government will almost certainly look to increase revenue. And increasing revenue typically means raising taxes, closing deductions, and expanding audits.
That creates an environment filled with uncertainty—and risk—for the business community.
Impacts on Taxpayer Obligations
The need to rein in the debt may lead Congress to revisit prior tax policies. When paired with expiring provisions from the 2017 Tax Cuts and Jobs Act (TCJA) in 2025, we are likely facing an uncertain and/or challenging tax landscape.
Expect the following changes:
Higher Personal Income Taxes
Current marginal income tax rates, which were temporarily reduced under the TCJA, are expected to revert to pre-2017 levels unless new legislation prevents it. For many high earners in the DMV region, especially those in upper brackets, this could mean a 3% to 5% increase in annual liabilities.
Limitations on Business Deductions
The OBBBA made the Qualified Business Income (QBI) deduction for pass-through entities—including S-Corps, partnerships, and some LLCs—permanent starting January 1, 2026. The changes to the QBI provisions may be beneficial to some businesses. However, other changes in tax laws limit business deductions, which could increase tax liability for some companies.
Reduced Estate and Gift Tax Exemptions
Perhaps most notably, the estate and gift tax exemption—currently over $13 million per individual—was slated to fall by 50% at the end of 2025. The OBBBA signed on July 4, 2025, removed that sunset provision.
For 2026, the estate and gift tax exemption increases permanently to $15 million per individual, with a combined exemption of $30 million for couples. For business owners focused on generational wealth transfer or protective estate planning, estate changes may be required to take advantage of the permanent amounts.
What Business Owners Should Watch
The debt crisis will pressure policy makers to scrutinize business structures, financial reporting, and compliance even further than they already do.
Good bookkeeping and proactive risk management are no longer optional—they're essential. Here's how to stay ahead of the curve.
Smart Structuring
Choosing between an LLC, S-Corp, or C-Corp may shift in strategy over the next few years. For example, if the QBI deduction disappears, S-Corp distributions may lose one of their main advantages, leading some businesses to reconsider their choice of entity.
An LLC previously taxed as a disregarded entity could become a liability in an environment of tightening tax enforcement. It might make sense to restructure or layer the entity within a holdco for asset protection purposes.
Increased IRS Scrutiny
The Inflation Reduction Act (IRA) allocated $80 billion to beef up IRS enforcement. This signals an upcoming wave of audit activity, aimed especially at partnerships, high-income individuals, and S-Corps across sectors including professional services, real estate, and consulting.
It's not a matter of if—but when—the IRS takes a closer look. Ensure proper documentation of expense deductions, salary distributions for owner-employees, and use of retained earnings for growth.
Cash Flow Constraints from Higher Interest Rates
The Fed cut interest rates three times in 2025. However, if government continues borrowing, the Fed may increase rates again. If so, the increased rates affects not just your mortgage or personal loan terms but also the cost of capital for your business.
For small businesses in the DMV region, this may translate to higher financing costs for expansion, inventory purchases, or payroll funding. It also increases the leverage risk on existing debts—creating potential covenant breaches and capital infusions at unfavorable terms.
Now is an ideal time to review business financing agreements, maturity dates, and debt service coverage to spot exposure early.
Impacts on Estate Planning and Wealth Management
The national debt crisis almost guarantees a more stringent estate and wealth transfer environment. Business succession, gifting strategies, and trust structures will all require a fresh look.
Permanent Estate Exemption
The OBBBA made the federal estate and gift tax exemption permanent beginning January 1, 2026. The individual exemption will be $15 million with a combined exemption for spouses of $30 million.
Individuals and families should consider estate planning strategies that optimize the permanent exemption (e.g., maximizing lifetime gifts now at higher exemption, planning for portability elections, using trusts effectively). This could pose major changes in strategies to transfer a business, contribute to family trusts, or pass significant real estate assets across generations.
Planning strategies you should be discussing with your legal advisor today include:
Using Spousal Lifetime Access Trusts (SLATs)
Gifting interests in closely held companies under the current exemption
Creating Grantor Retained Annuity Trusts (GRATs) to lock in value
Revisiting buy-sell agreements in family businesses to plan liquidity
Tax Efficiency is No Longer Optional
For families with portfolios that include real estate, private equity, or operating companies, tax planning techniques such as discounted valuations, intra-family loans, and dynasty trusts must be reviewed in light of a shifting regulatory landscape.
Leaving these discussions to next year or later may cost you millions in preventable tax exposure.
Compliance and Litigation Risks Rising for Businesses
From a legal perspective, a high-debt fiscal environment breeds regulatory aggressiveness. State and federal authorities may broaden interpretation of ambiguous statutes, retroactively enforce rules, or increase penalties for errors to satisfy revenue goals.
For instance:
Partnerships could face joint liability in audit resolution.
Non-paying S-Corp shareholders may be questioned over reasonable compensation.
Failure to comply with complex SALT (State and Local Tax) apportionment rules across MD, DC, and VA could trigger interest and penalties.
Businesses operating across state lines should especially watch for changes in nexus standards and "doing business" thresholds, which influence tax liabilities and compliance burdens.
Increased collection efforts can also increase civil litigation risks. A competitor could weaponize whistleblower protections, or disgruntled partners may seek leverage through alleged mismanagement claims tied to misallocated tax distributions.
Practical advice: tighten your internal governance. Document board resolutions. Formalize distributions. Keep minutes, and verify that all ownership arrangements are current and legally compliant.
Example: A Real Estate Holding Company in the Crosshairs
Let's say you're the managing member of a real estate LLC that owns properties in D.C. and Virginia. The business benefits from depreciation deductions, operates as a pass-through entity, and distributes income quarterly to members.
Under the current tax code, it's a tax-efficient setup.
But fast-forward to a world with:
no QBI deduction,
higher ordinary rates,
and increased passive activity restrictions.
Add in aggressive IRS audits targeting real estate entities and changes in SALT deductibility through 2029. Suddenly, your operational flexibility is constrained. Your members want proactive adjustment, and your distribution model needs to adapt.
Without early legal intervention, you're reactive and exposed.
With the right structure and strategy—such as segmenting operations, utilizing 1031 exchanges, reviewing basis calculations—you not only protect your business but improve its long-term positioning.
The Broader Message: Strategy, Not Panic
Fiscal uncertainty invites speculation, but smart business owners don't sit on the sidelines—they strategize. Debt-driven tax reform is coming, regardless of political cycles. Whether it arrives abruptly or in phases, those who plan ahead will preserve assets, minimize exposure, and capitalize on gaps others miss.
At Thienel Law, we've helped LLCs, partnerships, individuals, and family businesses in Maryland, Virginia, and D.C. adapt to changing federal and state rules with legally sound, tax-efficient strategies.
Now is the time to revisit your:
Entity type and ownership structure
Compensation agreements and tax treatment
Wealth transfer and estate planning models
Risk and compliance protocols
Tax strategy for the next 5–10 years
Don't Wait Until the Laws Change. Prepare While You Still Have Time
Even if no new legislation is passed this year, many current tax benefits will expire soon—impacting your bottom line, your personal wealth, and your succession plans.
If you're unsure how this applies to your business or personal situation, we're here to help. Schedule a consultation with Steve Thienel to get advice tailored to your goals.
At Thienel Law, we provide legal counsel that's practical, protective, and forward-thinking—so your business and legacy can meet the future on solid ground.