The tax man cometh – and just exactly what that means this year depends on your business. For some, the Affordable Care Act (ACA) will bring significant ramifications. For others, capitalization and repair rules are going to be a major concern. For businesses and CPAs alike, IRS response times could cause problems. In the following paragraphs, local CPAs share their expertise with VBJ readers to help them better weather this year’s tax season.
Affordable Care Act
If your company has been providing health insurance already, said Cathy Van Orden, manager, and Amber Maddox, senior manager at Barrett & Company, the ACA won’t have too much effect on your 2014 tax return. However, Doug McLain, CPA with Currie & McLain PS, stated that for companies with more than 25 full-time employees (FTEs), the ACA could require more forms and more calculations. Even calculating what constitutes an FTE can be complicated, because there are different rules for different industries. McLain added that some small businesses may qualify for the Small Business Health Care Credit, if they meet several criteria, such as fewer than 25 employees and average annual wages of less than $50,000.
Joseph Rakoski, partner at Vierck & Rakoski, CPAs, P.C., raised a more fundamental concern.
“This is about healthcare. Why is it going through the tax return?” Rakoski asked. “It is going to make filing more complicated and will drive up costs for tax preparation.”
Rakoski said a lot of his clients are asking whether they should have a health plan. Or, they wonder, are employees better off going on the exchange while the business pays the penalty. This is not so much a tax question but a planning question, he said, but it is an important decision for business owners.
Capitalization, repairs and maintenance
According to McLain, the IRS has issued more than 250 pages of final regulations affecting materials and supplies, expenditures to acquire, produce or improve personal tangible property, real property and certain intangibles. These rules were effective beginning January 1, 2014.
“One of the biggest changes last year is that the IRS issued final regs on capitalization of repair and maintenance,” said Van Orden and Maddox. “There are going to be changes in regards to that.”
They explained that clients need to make certain elections, and, if there are changes to the way they are currently disposing of things or expensing things or capitalizing things, they’ll need to file an accounting method change form (Form 3115).
According to one Forbes article, “It is not overstating the situation to say that the average tax preparer will complete more Forms 3115 this year than in all of his or her previous years combined; if you believe some of the doomsayers, every taxpayer with a depreciation schedule will need at least five Forms 3115 attached to their return.”
In addition to the new rules, on December 19, Congress extended several important tax provisions that affect expensing and depreciation of assets. Rakoski said two of these were “huge” for small and medium sized business – immediate expensing of assets purchased is back up to $500,000, compared to $25,000, and bonus depreciation (deducting 50 percent of the cost of certain assets) is reinstated.
Can you hold, please?
The IRS is rarely praised for their responsiveness, but things could get worse. IRS budget cuts are predicted to increase the time callers spend on hold, and the IRS is stating that it can’t guarantee they can answer your question when you do get through. Van Orden and Maddox said they often are on hold for an hour or more, while McLain said he’s been on hold for two to three hours sometimes.
“There’s no fast track for CPAs,” said McLain.
According to an ABC News article, “the tax agency says only half of the 100 million people expected to call this year will be able to reach a person.”
Making the best of it
There are a few things businesses can do to make this year’s filing season as painless as possible. At the top of Barrett & Company’s list, said business development manager Drew Barrett, is communication.
“We communicate with clients throughout the year,” said Barrett, not just during filing season. Regular communication enables CPAs to take advantage of potential opportunities that the business owner may not be aware of, Barrett explained.
Rakoski said that, although CPAs are obviously busy this time of the year, these early months are a good time to start conversations about what to expect in 2015 so that the CPA and business owner can plan accordingly.
Another item that everyone agreed was beneficial for both CPAs and business owners was to avoid procrastination.
“Turn your stuff in early,” said Barrett. “Most CPA firms are first in, first out.”
And, he added, have everything completed as much as you can, and “if you’re not sure about something, include it anyway.”
Ryan Greear, shareholder and CPA at Frumenti, Lander and Wallace PS, said that many of his firm’s clients’ profits are up for 2014 over 2013 and his firm has seen client growth as more businesses seek help with taxes.
“A lot of small and medium businesses are slowly climbing out of the recession,” reported Greear, “and tax planning has increased quite a bit. We expect to be very busy this year.”
Remember, said Rakoski, “the only way to not pay any tax is not to make any money.”
More firms eligible for R&D Tax Credit than apply
If you think your business is eligible for a deduction or credit, you should ask your CPA. That is Ryan Greear’s advice as a shareholder and CPA at Frumenti, Lander and Wallace PS.
“We see a lot of small businesses miss out on deductions that were created just for them, such as the R&D credit or the domestic production deduction.”
The federal R&D tax credit (separate from the Washington state R&D tax credit) was one of the tax provisions extended by Congress this past December. However, said Greear, manufacturers and other businesses may not know they’re eligible for the R&D credit, which can save businesses thousands of dollars or hundreds of thousands, depending on volume.
Determining whether a company is eligible for the R&D credit “takes an engineering and accounting background,” according to Greear. The Alliant Group, a national company that helps businesses apply for state and federal tax incentives, conducted a study that revealed that only one in 20 small- and medium-sized businesses that are eligible for the R&D tax credit actually apply for it.