Sea­son Tax Sea­son Pre­view

Spe­cial Re­port:

Accounting Today - - Opinion - From page 18

item­ized de­duc­tions for non­busi­ness state and lo­cal taxes de­duc­tions, in­clud­ing prop­erty taxes.

“That’s a big change. Folks in high-tax states, maybe like Cal­i­for­nia or New York, may see that im­pact some of their clients be­cause now there’s a limit on what you can deduct,” said Mike D’avo­lio, se­nior tax an­a­lyst at In­tuit.

Many prac­ti­tion­ers, like An­drea Par­ness, owner of A. Par­ness Co. CPA in Belle Har­bor, N.Y., have been meet­ing with clients to run pro­jec­tions and man­age ex­pec­ta­tions. “The big stick­ing point, ini­tially, was the lim­i­ta­tion on the item­ized de­duc­tions. [In New York] we have huge real es­tate taxes and huge state and lo­cal tax ... Peo­ple were re­ally ner­vous. So, if my clients are ner­vous, that’s some­thing that’s im­por­tant and I’m go­ing to fo­cus on that,” Par­ness said. Us­ing In­tuit’s tax planner tool, Par­ness ran pro­jec­tions for clients to ad­dress client con­cerns. “We were able to show the clients that it wasn’t so hor­ri­ble. And, in many cases, de­pend­ing on if they were in an Al­ter­na­tive Min­i­mum Tax sit­u­a­tion, they might be break-even or slightly bet­ter off with the new tax law.”

Echo­ing the sen­ti­ment, Frank Stitely, man­ag­ing mem­ber and part­ner of Chan­tilly, Vir­ginia-based firm Stitely & Karstet­ter, said, “One of the biggest [con­cerns among clients] is how bad am I go­ing to be hurt by hav­ing this cap on the state and lo­cal de­duc­tion, the $10,000 cap.”

In an at­tempt to avoid the new $10,000 limit, blue states like New York and Con­necti­cut ap­proved tax credit pro­grams en­abling in­di­vid­ual tax­pay­ers to make char­i­ta­ble con­tri­bu­tions to state-run funds as a way to by­pass the limit. But the move quickly raised eye­brows and, in Au­gust, the In­ter­nal Rev­enue Ser­vice and Trea­sury Depart­ment is­sued pro­posed reg­u­la­tions aimed at thwart­ing the char­i­ta­ble work­arounds. Busi­ness tax­pay­ers, how­ever, who make busi­ness-re­lated con­tri­bu­tions to char­i­ties or gov­ern­ment en­ti­ties for which they re­ceive state and lo­cal tax cred­its can gen­er­ally deduct them as busi­ness ex­penses, ac­cord­ing to the IRS and Trea­sury.

Meals and en­ter­tain­ment. Another pro­vi­sion on the radar screen is tax re­form’s im­pact on busi­ness ex­pense de­duc­tions for meals and en­ter­tain­ment. Ac­cord­ing to Roll, it’s an im­por­tant is­sue for Bloomberg Tax sub­scribers: “That’s go­ing to bring a whole new level of sub­stan­ti­a­tion, so you’re go­ing to have to seg­re­gate [the en­ter­tain­ment and meal ex­penses]. … Meals and en­ter­tain­ment is one of the hottest top­ics for our sub­scribers.”

Said Luscombe of Wolters Kluwer, “I think that’s go­ing to be another com­pli­cat­ing is­sue. The IRS has come out with some guid­ance on this that, I think, is fairly help­ful on when can you sep­a­rate meals from the en­ter­tain­ment ac­tiv­ity and still claim the de­duc­tion.”

The new tax law elim­i­nated the de­duc­tion for any ex­penses re­lated to ac­tiv­i­ties gen­er­ally con­sid­ered en­ter­tain­ment, amuse­ment or recre­ation. Ac­cord­ing to guid­ance is­sued by the IRS, tax­pay­ers can still deduct 50 per­cent of the cost of busi­ness meals if the tax­payer (or an em­ployee of the tax­payer) is present and the food or bev­er­ages are not con­sid­ered “lav­ish or ex­trav­a­gant.” The meals may be pro­vided to a cur­rent or po­ten­tial busi­ness cus­tomer, client, con­sul­tant or sim­i­lar busi­ness con­tact.

Food and bev­er­ages that are pro­vided dur­ing en­ter­tain­ment events will not be con­sid­ered en­ter­tain­ment if pur­chased separately from the event.

As of press time, pro­posed reg­u­la­tions from the IRS and Trea­sury clar­i­fy­ing ex­actly when busi­ness meal ex­penses are de­ductible and what con­sti­tutes en­ter­tain­ment had not yet been re­leased.

Stan­dard and item­ized de­duc­tions. Start­ing in 2018, the new tax law nearly dou­bles the stan­dard de­duc­tion to $24,000 for mar­ried in­di­vid­u­als fil­ing a joint re­turn and $12,000 for sin­gle fil­ers. This, cou­pled with the fact that a num­ber of com­mon item­ized de­duc­tions have been re­duced or elim­i­nated, will likely mean that far fewer tax­pay­ers will be bet­ter served item­iz­ing de­duc­tions.

Tax prac­ti­tion­ers will need to en­sure their clients are aware and un­der­stand the change and also un­der­stand the im­por­tance of track­ing item­ized de­duc­tions ex­pected in fu­ture years. “Tax­pay­ers are con­di­tioned to track all kinds of item­ized de­duc­tions and now, more than likely, will be look­ing at a stan­dard de­duc­tion. With the larger stan­dard de­duc­tion, prac­ti­tion­ers are go­ing to have to spend more time ex­plain­ing to their clients why it might be im­por­tant to track item­ized de­duc­tions for fu­ture years,” Roll said.

New Form 1040. The new post­card-sized Form 1040 re­places the cur­rent Form 1040, as well as the Form 1040A and Form 1040EZ. De­spite its sim­pli­fied ap­pear­ance, the new form isn’t as straight­for­ward as it seems.

“The end-user tax­pay­ers were used to those old forms, so now it’s a change. There’s prob­a­bly a lit­tle un­cer­tainty,” said In­tuit’s D’avo­lio. “Although this post­card does re­place the old forms, it’s still not as sim­ple as it looks. You have these sup­ple­men­tal sched­ules that ac­com­pany the post­card.” The Form 1040 may have shrunk, but the num­ber of sched­ules has grown. Dur­ing the sum­mer, the IRS posted a draft ver­sion of the new Form 1040, along with six new sched­ules. This is on top of a num­ber of tra­di­tional sched­ules that re­main. Tax prac­ti­tion­ers will quickly get up to speed on the new form but, again, com­mu­ni­cat­ing this change to clients will be a fac­tor.

Lever­ag­ing tech­nol­ogy

Hav­ing the right sys­tems and tools in place is ob­vi­ously es­sen­tial for any tax firm, but this tax sea­son tech­nol­ogy will play an es­pe­cially im­por­tant role.

“Ul­ti­mately, firms will need to very read­ily look to tech­nol­ogy to re­ally solve this is­sue,” said Corey Greene, prod­uct man­ager of tax work­flow at Thom­son Reuters Tax and Ac­count­ing. A crit­i­cal tech­nol­ogy that is get­ting greater at­ten­tion from prac­ti­tion­ers, said Greene, is op­ti­cal char­ac­ter recog­ni­tion-re­lated tech­nol­ogy.

“One [tech­nol­ogy] that is pick­ing up steam now but still isn’t where it should be to­day is re­ally Ocr-re­lated tech­nol­ogy,” he said. “If a firm is re­ally spend­ing any time at all man­u­ally in­putting in­for­ma­tion from source doc­u­ments, like 1099s and K1s, then they re­ally need to eval­u­ate the im­ple­men­ta­tion of scan, sort and pop­u­late soft­ware out there that uses that OCR tech­nol­ogy to au­to­mate these pro­cesses.” Greene also pointed to the im­por­tance of soft­ware in­te­gra­tion and ex­ten­sive im­port­ing and ex­port­ing ca­pa­bil­i­ties.

Im­ple­ment­ing a ro­bust re­search and guid­ance so­lu­tion is also es­sen­tial this sea­son, as it saves prac­ti­tion­ers time and helps en­sure clients have a clearer un­der­stand­ing of tax law changes.

Staffing con­cerns

At­tract­ing and re­tain­ing top tal­ent con­tin­ues to be a ma­jor con­cern for many firms, and given to­day’s tight job mar­ket, could prove es­pe­cially dif­fi­cult this tax sea­son.

”[The mar­ket is] at full em­ploy­ment and so that gets out to plan­ning ahead, know­ing the sea­son is go­ing to be com­pressed, get­ting your staffing in place and trained as best as you can. But [it also high­lights the] im­por­tance of lever­ag­ing tech­nol­ogy and au­tomat­ing as much as you can be­cause it’s go­ing to be hard to find good staff. It re­ally will be. We, again, are truly at full em­ploy­ment. I think it’s go­ing to be very tough to add tem­po­rary staff,” said Jim Mcgin­nis, ex­ec­u­tive vice pres­i­dent and gen­eral man­ager of the medium and large firm seg­ment at Wolters Kluwer Tax and Ac­count­ing North Amer­ica.

Christo­pher Pic­ci­urro, ex­ec­u­tive of­fi­cer and co-founder of Ster­ling Heights, Michi­gan-based In­te­grated Fi­nan­cial Group, ac­knowl­edged that staffing is a “No. 1 con­cern” and said the firm has worked to re­duce its re­liance on sea­sonal work. “What we’ve tried to do is, with our sea­sonal team, make their tasks more ad­min­is­tra­tive. Maybe they are the ones mon­i­tor­ing our client por­tals and pulling in­for­ma­tion into where it needs to go. [We] try to limit their di­rect in­ter­ac­tion with clients and have our more per­ma­nent staff mem­bers in­ter­act with clients the most,” he noted.

“Staffing for pub­lic ac­count­ing, I think, is al­ways an is­sue. It’s a lot of long hours and a lot of stress dur­ing busy sea­son, so it’s al­ways been a bit of an is­sue. We are try­ing to im­ple­ment new tech­nol­ogy to help re­cruit some of the staff,” said John­son of Akin, Do­herty, Klein & Feuge, re­fer­ring to such tech­nolo­gies as cloud-based applications, video con­fer­enc­ing and tex­ting.

While many prac­ti­tion­ers are hope­ful their proac­tive ef­forts will pay off, there’s no doubt the sea­son will face head­winds. “I would say it will be a lit­tle more dif­fi­cult sea­son than most,” said Luscombe. “This is the first year we’ve had to deal with re­ally all of these changes.”

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