For tax professionals, January is often a quiet time of gathering information, according to Lisa Todd, a partner at financial services firm Moss Adams in Albuquerque and chair of the New Mexico Society of Certified Public Accountants.
Not so this year.
“We are seeing an extraordinary amount of communication with clients,” said Todd. “Everyone is trying to educate themselves about what the tax bill means for them.”
At the heart of the scramble is the 1,000-page piece of legislation passed late last month by Congress, the most sweeping overhaul of U.S. tax laws since the 1980s. Among the changes: lowering the income tax on the nation’s highest earners from 39.6 percent to 37 percent; allowing owners of certain types of businesses to deduct 20 percent from their business income; and lowering the corporate tax rate from 35 percent to 21 percent.
Jim Hamill, director of tax practice at the Albuquerque-based Reynolds Hix & Co. and a Journal columnist, said what is clear at this point is that the complexities of the law present an enormous opportunity for CPAs.
“Technology has long threatened to take over mundane tax preparation work,” said Hamill. “In my view this is a bad bill – it was put together very quickly and, as a result, will likely have unintended consequences – but it has created lots of opportunities to plan. And in our industry, that’s a good thing.”
Jimmy Trujillo, tax department head of the Phoenix- and Albuquerque-based REDW, said accounting practices could see their client flow change under the new law. Under the old law, the standard deduction was $6,350 for individual taxpayers or $12,700 for joint filers, with personal exemptions of up to $4,050 for each family member. Now there will be no personal exemptions and standard deductions of up to $12,000 for single filers and $24,000 for joint filers. As a result, more individuals may elect to simply take the standard deduction, said Trujillo.
“It’s probably going to change how many individuals need a tax preparer to file their returns,” he said. “It’s too early to tell, but this is the way the industry has been heading for a while.”
And while high-net-worth individuals have long been an important part of the client roster, Trujillo said it is businesses that will likely need the most tax planning help from professionals. As a result, he said, REDW is identifying clients who could benefit from additional planning services.
“There are just so many new provisions on the business side, and in many cases it requires some pretty sophisticated planning,” he said. “We’ve already started reaching out to our clients, setting up times to meet with them.”
Trujillo also said the company is updating its software so that it can run financial projections for its clients that reflect the new guidelines.
At Moss Adams, technology is also coming into play, in the form of webcasts the company is creating for its clients to educate them on the changes in the bill. Todd said devoting resources to the planning and education side of its business will be a priority for the company going forward.
Structure and depreciation
It will likely take years for the government to fully flesh out the details of the new law, according to Tom Broderick of the Albuquerque-based accounting and consulting firm BPW&C.
“The last big overhaul was in 1986, and most of the relevant regulations weren’t in place until the early nineties,” said Broderick. “These things take time.”
Still, he said the IRS will issue initial guidance in the coming months, and the business community will be expected to make “reasonable interpretations” based on the bill and Congressional committee reports for tax year 2018.
For small business owners who don’t know where to start, Broderick suggests paying particularly close attention to two issues: the structure of the business entity (see sidebar) and bonus depreciation.
Bonus depreciation is a concept that reflects the fact that certain investments owners make in their own businesses depreciate over time: a construction company that buys a loader, for example, will see that piece of equipment become less valuable over time as it is used.
On their taxes, businesses can engage in a process called “accelerated depreciation” with equipment, which gives owners a deduction of up to 50 percent the first year the equipment is put into use. Now, that deduction has been increased to up to 100 percent for a five-year window from Sept. 27, 2017 to Dec. 31, 2022. Companies that are considering buying equipment or investing in other types of business property may want to look carefully at the new rules around bonus depreciation to see if they can put them to use, Broderick said.
Perhaps the biggest takeaway of all, according to Broderick, is that every business is different, and a solution that saves one organization millions of dollars isn’t necessarily a one-size-fits-all approach for the rest of the industry. In other words, if there was ever a time to seek the advice of a CPA, it would be now, said Broderick.
“We’re definitely feeling in demand,” he said.