It’s December. Do you know what your tax laws are?
Accountants had to wait more than 11 months before Washington could agree on its filing rules for 2014
By Scott Robertson
As of Dec. 31, 2013, some 55 tax breaks that had been part of the American Taxpayer Relief Act of 2012 had expired. As of Dec. 1, 2014, Congress had yet to act on whether to retroactively reinstate any or all of them.
That news was disappointing, but not necessarily surprising for those who prepare tax returns for a living.
“Being a mid-term election year, it’s not really a surprise that those things have kind of lingered to this point,” Travis McMurray, partner specializing in tax consulting at Blackburn, Childers and Steagall said Dec. 2. “We are at a point now where we feel filing season may be delayed a bit for taxpayers because of some of these possible eleventh-hour changes. Once the House and Senate pass something, the IRS has to deal with it, then all the tax software companies have to deal with it. So there’s a domino effect.”
The political procrastination is not merely annoying, said Stan Bowles, partner at Brown Edwards. Lawmakers’ loitering on tax issues is harmful to business. “Anybody in the business world likes a planned approach. Our current political system undermines that process. People are scared to spend money because they don’t know what to do and what not to do. So everything has to be reactive, and that’s a major problem in doing business.” 220
That’s not to say every change in the tax code for this year is coming as a shock to preparers. Outside of the ATRA2012 tax breaks, there are several changes that have been in place for months.
For instance, it has been common knowledge that most retirement plans have needed to be amended in order to comply with this year’s spate of same-sex marriage laws.
The new limitations to cafeteria plans are well-known in the CPA community. The use-it-or-lose-it rule which had been replaced by a regulation allowing year-to-year rollover of $500 has been modified again. “Now you can carry that $500 forward,” Bowles said, “but if you do, you can no longer use a health savings account. It’s one or the other.” 344
Accountants have spent the year taking advantage of new regulations regarding tangible property – what are referred to as “repair regulations.” Under 2014 rules, companies may make use of the de minima safe harbor election. De minima, said Andy Hatfield, partner with BCS specializing in tax, allows write-offs for purchases under $500 for unaudited companies and under $5,000 for audited companies of items that in some cases had been required to be capitalized and depreciated over the life of the item in past years. “That actually steps away from the improvement of property and relates more to the acquisition of property,” Hatfield said.
Because those regulations were in effect early, Bowles said, they have been used often. “We’ve been making those elections like crazy in the last year.”
But there is a catch – not so much for the taxpayer as for the preparer. In order to take advantage of the repair regulations changes, preparers must file a new form (3115) along with the client’s return. The 3115 acknowledges the preparer understands the changes being utilized. It’s just another layer of bureaucracy, said Hatfield. “This 3115 is not easy. It’s an eight-page form with attachments. But we’re dealing with lawmakers who think it’s no big deal.” 551
Several changes dealing with implementation of the Affordable Care Act have been on the books since Jan.1, Bowles said. “The Affordable Care Act employer mandate is going into effect. They have now defined a full-time employee as working 30 hours a week on average. Those companies who have 100 full-time equivalents are going to have to cover 70 percent of their employees for 2015 and 95 percent in 2016 or pay penalties. In 2016 it drops back to where 50-99 employee companies are covered under that provision as well. The penalties can be anywhere from $2,000-$3,000 per employee who is not properly covered.”
Just because the regs have been on the books for almost a year, that’s no guarantee that everything will go smoothly, Bowles added. “Under the ACA, if the employer has more than 250 employees for whom they would have had to file forms, they have to put on the W-2 the actual health insurance they paid for the employee. This was intended to give the employee some consumer information to be able to make an informed decision. The requirement is that as an employer, you have to disclose the health insurance.” The problems, Bowles said, include the fact that employers can optionally include vision and dental insurance. “Since that may not be part of the base coverage, you may be comparing apples to oranges. That’s a real problem.”
Because businesses with more than 50 FTEs will be required to provide insurance next year, McMurray said, “We have talked with businesses who say, ‘We are keeping our employee count below 50. That’s the magic number.’ One can say that it’s not encouraging growth in small business. One could even take it a step forward and say it is discouraging growth in small business.”
One other regulation change is particularly troubling for those who favor free markets. There has been a small business insurance tax credit. In the past preparers simply plugged their clients’ numbers into a formula to see if they qualified. For 2014, however, no business that gets its coverage through the commercial market is eligible for the credit. A company only qualifies for it if the company has purchased coverage through the exchange.
At the end of the day, or more literally, the end of the year, the government provides the accounting world a benefit and a nightmare at the same time, Bowles said. “The benefit is the law is always changing so there’s always something new to keep up with. The nightmare is they don’t give you adequate time to educate your clients and plan.”