Representatives of the National Conference of CPA Practitioners visited the White House, Congress and the Internal Revenue Service during meetings in Washington, D.C., last week – and they weren’t there for the photo opp.
The 20 members brought with them their ideas on a number of tax-related issues, including identity theft, required minimum distributions, deduction of long-term health care premiums, tax preparation fees, rental deduction parity for S corporations, early retirement plan distributions, and the need for the IRS to have the authority to regulate tax return preparers.
For Sandra Johnson, a Bellmore, N.Y.-based CPA and the immediate past president of NCCPAP, one of the main issues is with retirement plans, specifically in the area of required minimum distributions.
“There are currently more than 15 types of retirement plans,” she noted. “Many taxpayers have more than one type of plan when they reach age 70-1/2, the age at which they must begin taking out a required minimum distribution -- unless they are employed by the organization that is the sponsor of the plan or their account is a Roth IRA. The way that the retirement rules are written, each class of retirement asset has its own RMD requirement. The amount that must be withdrawn is based on the account balance at the end of the immediately preceding calendar year, the plan owner’s age during the current year, and a factor from one of two IRS-approved tables depending on the age of the beneficiary.”
NCCPAP recommends that taxpayers should be able to pool their retirement funds and make one distribution for the entire amount from any of their retirement accounts from which they must make an RMD. In addition, Johnson said, “We’re looking for a way to get rid of the ‘half’ [in age 70-½]. People remember when their birthday is, but very few know when their half birthday occurs.”
“Many of our taxpayers, by the time they turn 69 or 70, may not be as financially savvy as they had been previously in life,” she added. “We’re looking at someone who has saved for retirement and doesn’t understand the rules about their half birthday. They may be subject to a significant penalty if they get it wrong, and it affects other items on the return as well, such as the taxability of Social Security money. If they get hit with a significant excise tax, that’s money that’s now lost that would still be earning them income. These are senior citizens – they don’t have significant years of earning potential ahead of them, and many can’t afford to hire a CPA. We feel the tax system should be rewarding them and making things a bit simpler, rather than making things more complicated.”
NCCPAP members also urged rental deduction parity for S corporations, according to current president Stephen Mankowski.
“I’m passionate about S corporations and their inability to take the home office deduction,” he said. “Our members handle the mom-and-pop shops on Main Street, so we get ‘up close and personal’ with them and see where the inequities lie.”
A self-employed individual and partner in a partnership can deduct the ordinary and necessary business expenses of a qualified home office on their income tax returns, Mankowski observed. “And a C corporation very often has the ability to pay rent to the shareholder. An S corporation doesn’t even have that. An S corporation carrying on a business out of the home really can write off none of the utilities, insurance, or other expenses even though they may operate out of, say, the entire basement of a home. Small-business owners are often very limited in their knowledge of tax matters – they may see their accountant once a year, and may not be getting the advice on ‘choice of entity’ they need.”
Therefore, NCCPAP recommended that a shareholder of an S corporation be afforded the ability to take the exact same deductions for a home office as a business owner of another entity would be able to do.
“The Joint Committee on Taxation was very receptive to the points we brought to them this year,” said Mankowski. “They score different legislation in terms of cost, and very often the issues that cost money never get passed. This one would cost money in terms of scoring because it would give more deductions to the S corporation, but everyone agreed that without it, it is unfair.”
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