Calm before the storm?
After relatively few tax law changes for businesses in 2016, accountants can only say something will change in 2017. What, and how much, is anyone’s guess.
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From the pages of In Business magazine.
For all the political hubbub that took place last year, 2016 was actually a pretty quiet year for changes to tax laws, according to local accountants. With Congress now working its will on President Trump’s tax proposal, however, it’s anyone’s guess of what to expect in the 2017 tax year.
“Maybe a tax reform magic eight ball would help,” quips Mike Kollath, CPA and partner at Kollath & Associates CPA in Middleton. “Based on what we’ve seen from the Trump presidency, I don’t know that anyone can predict what will happen. I know he has put forth proposals with very little detail behind them, and that tax reform is a high priority — but so was health care.”
When IB first considered the topic of business taxes for this issue, we thought we’d be able to look back at the 2016 tax year to highlight some of the major changes that took place and might have caught business owners by surprise. Sort of a “What did we learn last year that can give us a clue what to expect for this year?” kind of thing.
What we didn’t expect to learn was that 2016 was just a very dull year. Of course, that’s just fine as far as accountants are concerned.
“One thing I would love is for Congress to be required to approve all tax law changes six months before year-end/implementation, as that would allow companies to better plan, add employees, change spending, and update their quarterly tax estimate payments,” notes Vicki Buening, a tax principal at Reilly, Penner & Benton LLP in Madison.
Sound planning in Congress doesn’t often happen, and it was the biggest complaint of the accountants we spoke with about the way Congress and the Internal Revenue Service approach changes to tax laws.
“We strive to deliver no surprises for our clients,” says Jacob Peters, a principal at SVA Certified Public Accountants in Madison. “I’d say we achieved that for 2016, but for 2017 my main concern is how and when we’ll have some certainty on tax rates, if nothing else. In particular, the proposed reductions for business taxation will have a far-reaching impact on a lot of planning decisions that would need to be made before the end of the year.”
Small shake-ups, but mostly status quo
So, what exactly did change on the 2016 business tax law landscape?
“The 2016 tax year did have some minor or obscure changes, and tax laws that were extended, but overall it was pretty benign from a tax standpoint,” comments Kollath. “The big change for the 2016 tax season was in the filing deadline for partnership and S corporation returns from April 17 to March 15, and C corporation returns from March 15 to April 17.
“Another change which impacted accounting firms was new security requirements from the IRS which, in turn, resulted in increased security requirements from the software providers,” Kollath adds.
According to Kollath, bonus depreciation also impacted a significant number of his clients, although it was based on the same rules in effect for the 2015 tax year, so while it technically was a change, it was enacted so early that tax planning was possible. “The ability to get a credit on your payroll taxes also impacted many of our startup companies, but the credit wasn’t available until 2017 when the tax return was filed,” he notes.
Gordy Meicher, a partner at Meicher CPAs LLP in Middleton, says 2016 did see some significant changes to tax laws that affect business owners, particularly in the area of tax credits and alternative minimum taxes (AMT). “We were able to save many business clients 10 years of our fees by simply taking advantage of the changes in these areas,” he notes. “It was a great year for accountants to prove their real worth to their business clients. It helped us, too — our business increased 13% over the 2016 tax season [2015 taxes].”
Peters (SVA) typically works with closely/privately held businesses headquartered in southern Wisconsin, serving both the business and its owners’ tax planning, tax compliance, and business advisory needs. He explains that a number of his clients operate in multiple states, and that’s probably the area where he saw the most pain when working on 2016 taxes.
“States are getting more and more aggressive in their pursuit of revenues, and in some cases a business may find that out-of-state activities that used to cause no problem now, in fact, subject them to another state’s tax system,” Peters notes.
Like Meicher, Peters also touched on the effect of changes to the alternative minimum tax. “Something that always surprises people is the impact of the alternative minimum tax, in particular when they have an abnormally high income and then get stuck with the AMT either in that year or in the following year when they pay their state income tax, which isn’t deductible for AMT purposes. I call that the AMT whiplash, and it ensnares people for whom the AMT was never intended to apply to when the original laws were written.”
For all the impact those tax law changes did have on business owners, however, Kim Anderson, a tax principal at the Middleton office of CliftonLarsonAllen LLP, says 2016 was relatively calm. “We weren’t running around in December trying to understand a new tax law, or guessing what was going to be passed in January (2017) but retroactive to 2016.”