The good news about the 2015 filing season is that it started on time, and that we know what the extenders are, according to Roger Harris, president of Padgett Business Services: "We're not dealing with any major change in tax laws, but we still have the [Affordable Care Act] and the tangible property regs to deal with. They're both new, and new to all of us at the same time, so it's hard to determine how much time we'll need to spend on these two topics during the next few months."
"The whole idea of tangible personal property regs will be a challenge for this year, mainly because most small-business owners haven't any idea that the rules are out there and what they may or may not have to do to comply with them and how they may change their tax returns. That and the ACA are the two wild cards for this tax season."
Although the extenders were passed, they expired shortly after they were signed into law, and will need to be addressed again during the year ahead. "Congress continues to make things more difficult because they pass things at the last minute," said Tim Ernesti, tax partner at MarksNelson LLC. "The other issue is, what kind of incentives are they if they pass with two weeks left to go in the year -- is that really an incentive?"
"It makes it difficult for business owners to do any long-term planning if they don't know what the tax laws are until the end of the year," he said. "Most business owners are not driven by the tax law, but it's nice to know what the tax law is before you make the expenditures."
"And then the ACA adds a whole layer of unknowns to business owners," Ernesti explained. "We deal with entities that range up to $25 million in revenue, and they don't necessarily have the infrastructure in place to deal with all the changes that are coming and have already hit. It adds another layer of uncertainty."
The ACA, in addition to being unfathomable to many smaller business owners and employees, contains severe risks for those who fail to make the right choices, according to ACA expert and attorney Kaya Bromley. "Large employers who have not yet complied with Obamacare or that ignored the January 1 compliance deadline due to indecision, general confusion about the law, or in hopes of potential delays relating to talk of repeal, are at risk of exposing themselves to large, and potentially crippling, penalties."
"Additionally, large employers with ACA-compliant plans already in place could risk exposure to some of these very same penalties resulting from common mistakes, such as incorrectly addressing the amount of full-time and full-time-equivalent employees a business has," she said. "Also known as the measurement period or lookback period, assessing the correct number of employees who must be offered health plans is the foundation to ACA compliance. When assessed incorrectly, the entire plan exposes the business to penalties."
Ernesti expects to analyze the impact of the tangible property regulations for some of the firm's larger clients. However, he suggested, "Some clients are not going to want to pay for it. Among the issues are that you are supposed to go back and clean up all your old sins. If it results in additional tax, they're not going to want to do it."
"A lot of people knew that bonus depreciation would be a part of the extenders, or strongly suspected it, but it occurred late, and therefore most did not go out and purchase equipment based on it," commented Dean Sonderegger, executive director of product management at Bloomberg BNA. "The expense had to be made by the end of 2014, but during the year there was no bonus depreciation and now it has to be accounted for retroactively. We're in the same position now as we get into filing season," he said. "There's no clarity from Congress."
"We've heard there will be a focus on comprehensive tax reform, just like there was supposed to be going into 2014," Sonderegger continued. "[Senate Finance Committee Chairman Orrin] Hatch said he will stay around specifically to address tax reform, so the big focus is not too dissimilar to where we were a year or two ago with [then-House Ways & Means Chairman] Dave Camp and [then-Senate Finance Committee Chair Max] Baucus. At the time, they said they weren't going to extend anything, but, 'We'll get this thing fixed through comprehensive tax reform.' Will that really happen in the first nine months, or will it simply put preparers and companies in a bind again where we don't know what tax laws they will be applying?"
The push to repeal the excise tax on medical devices will become a political football, Sonderegger predicted. "It could become a contentious item and possibly detract from other items on the tax reform issue," he said. "And the Democrats want to reform the entire Tax Code, while the Republicans will push for corporate reform as the first step."
TAXING AND STAFFING
The economy has played a role in easing staffing needs, according to Michael Solomon, tax partner at the Philadelphia office of Top 100 Firm EisnerAmper LLC. "This season more than most, we are better staffed due to the overall labor market," he said. "We offer more flexibility to our staff to better attract and hold on to them."
"Our firm, like so many other firms, is manned at the partner level by Baby Boomers," he said. "Close to 40 percent of partners will retire within the next five years, so we struggle with partner transitions. This affects tax season because that's when so much of the work gets done, and so much client contact occurs."
The way to make a smooth transition is to have both the current partner and the successor partner be involved with the client during tax season, Solomon suggested. "It's not enough just to introduce the new partner at one or two meetings. To bring value, the successor partner needs to be involved. Both partners have to be involved in the work in order for the transition to work effectively. I've transitioned my work to two other partners over the last several years, and I'm still involved on a client-by-client basis."
During the 2014 filing season there were a number of new issues to deal with, noted Miguel Farra, chairman of the Tax & Accounting Department at Top 100 Firm MBAF LLC. "We had the 3.8 percent Net Investment Income Tax, the 0.9 percent additional Medicare tax, and the increase in tax from 35 percent to 39.6 percent at the federal level for ordinary income and from 15 percent to 20 percent for capital gains and dividends. Those were big changes for last year. Now we still have those, plus we have all the new health insurance forms."
"It will be an interesting season because taxpayers that carry health insurance need to indicate that they had coverage last year and whether they received a credit to pay for it. While some people are getting subsidies for their insurance, if they ended up making more money than they expected, they may have to give back some of the premium tax credit that they received, and if they didn't have health insurance in 2014, they may have to pay a penalty."
The tangible property regulations were elective for the 2013 tax year, but are enforceable in 2014, according to Daniel Flugrath, a principal in the Tax & Accounting Department at MBAF: "The regulations provide a roadmap of the rules regarding what you can capitalize and what can be expensed. It's a very complicated set of rules, but in effect it says that if you refurbish a particular asset such as an engine or equipment or if you improve machinery, if there was any improvement in capacity, you have to capitalize. On the other hand, if there was no substantial improvement, you can expense the amount you paid to renovate machinery and equipment."
"For all preparers, the bad news this year is the continued growth of identity theft and refund crime," said Mark Steber, chief tax officer at Jackson Hewitt. "I tell preparers to contact their clients and encourage them to file as early as possible. A lot of taxpayers wait to file until the last minute for a variety of reasons, but if you file early you help eliminate the possibility of the refund being stolen."
"The ACA is one of the biggest tax changes in recent history," he said. "It touches all taxpayers, and every American will have to contend with it. Anytime it's the first time, you tend to have a learning curve on things you didn't know from last year. For the 80 percent who have insurance through their employers, it's a pretty simple process to indicate that they have it, but if not, they could have a complex tax return, and they will need help."
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