April 15 has come and gone, and you’re likely breathing easier because you won’t have to think about your taxes until next year.
That could be a critical mistake, local tax planners say.
True, there is a unique sense of relief each April 16 that another tax season has come and gone. But, the U.S. tax code has become a complex stew of ever-evolving regulations, credits and penalties. Breaks from one year can expire the next, then be retroactively reauthorized just before the tax season starts.
All that can lead to some last-minute headaches if you aren’t paying attention.
“The number one thing is to avoid surprises,” says Tony G. Kromanaker, a tax partner with Wipfli LLP’s Appleton offices. “Businesses change dramatically and quickly throughout a tax year.”
Regular meetings with a tax professional can help a business owner better understand those changes and what they mean in terms of tax liability, and can help a business owner avoid surprises and take advantage of last-minute changes or opportunities.
“They may be things you planned on doing anyway,” says Jim Olson, a tax shareholder in the Green Bay offices of Schenck SC. “You don’t want to let your tax situation dictate what you do, but if you know what’s going on, you can work things to your advantage.”
Not knowing can result in having to make last-minute decisions that might not readily fit into your overall plans.
While discussing taxes may not make anyone’s top 10 list of ways to spend time, most tax professionals say the work that needs to be done can easily be accomplished in three to four meetings a year.
“If you are already in the mode where you are paying your estimated taxes quarterly, that can also be a great time to do some review,” says Barb Blashka, tax and finance officer for Legacy Private Trust.
That regular review seems all the more important when considering just how fluid the tax code has become in recent years. Dozens of tax breaks that were available for 2013 are expiring. While they could ultimately wind up reauthorized for 2014, it most likely won’t happen until after the November elections.
That makes a late-year meeting – one held before form preparation begins – a critical step in avoiding pitfalls and taking advantage of opportunities, Olson says.
In addition to the long list of expiring credits, other significant items for 2014 include changes to the deductions for expensing, capital depreciation and the corporate research-and-development credit. This is also a grace period year in which the IRS will allow a “repair” on tangible property deductions because of late changes to the code in 2012.
But perhaps the biggest issue driving tax policy in 2014 – and a great incentive for regular checkups throughout the year – is the ever-evolving regulations associated with the Patient Protection and Affordable Care Act. With Jan. 1, 2015 an important implementation date for parts of the law, businesses will want to make sure they do the right things in 2014.
“This is when we should be planning and understanding its impact,” says Kromanaker. “This is also the time you will want to take steps that can change how the law impacts your business.”
Tax changes to watch for in 2014
» Section 179 expensing deductions reduced. This provision allowed businesses to expense certain capital purchases rather than take the annual depreciation. The cap was lowered to $25,000 from $500,000.
» Bonus depreciation eliminated. This provision of the tax code allowed for an immediate depreciation of 50 percent of a capital purchase.
» ACA employer mandates. While delayed from 2013, certain businesses will need to meet the terms of the mandates by Jan 1, 2015. W2 reporting requirements for qualified health plans go into effect in 2015.
» Medicare tax on investment income increases to 3.8 percent (in effect starting 2013).
» New limits on catchup contributions to deferred compensation and pension plans. — Compiled by Insight staff