Year-end tax planning complicated by Congress

Small-business owners are facing some unique challenges this year when it comes to year-end tax planning, said tax accountant Alvin Reagan, president of Bowman & Reagan CPA, Inc. in Corpus Christi.
“I’ve been at this game for awhile, and I’ve never seen it be more challenging for people in my business to try to do tax planning,” he said. “That’s mainly because of what we call extenders.”
Extenders are temporary provisions in the federal tax law that expire at the end of the year unless Congress steps in and extends the deadlines. Between 30 and 40 provisions of the tax law are considered temporary and will expire by Jan. 1, 2016, or they may have expired already but can be renewed by Congress in time for 2015 taxes.
“There’s a pretty good body of tax law in limbo right now,” Reagan said. “The biggest one is fixed assets.”
Fixed assets, Reagan explained, are furniture or equipment that can be expensed at the end of the year. Today, that limit is $25,000. The extension in limbo would increase it to $500,000. 
Another big one is bonus depreciation. When you buy a new asset, you can deduct half the cost for the year you put that asset in service. Bonus depreciation expired 12 months ago but can be put back into the law if Congress acts before it recesses in December.
“For those particular provisions, the odds are good that the extensions will happen,” Reagan said. “But you see the difficulty we face when a client calls up and says, ‘I’m thinking of buying $100,000 worth of new equipment between now and the end of the year. How much can I write off?’ You don’t want your accountant to say, ‘It depends.’”
But that’s the only answer a tax accountant can give with certainty. Especially this year as presidential politics take center stage and the House of Representatives struggles to find new leadership. 
“The tax laws won’t be finalized until after November,” Reagan said. “When it gets close to the end of the year and everyone gets past this current unrest, I think something will happen.” 
Reagan’s best advice for getting the most out of your tax deductions, no matter what Congress does in the end, is to keep a good set of books all year long.
“If you don’t record it, it won’t get deducted,” he said. “I always advise my clients to go back to the basics. Especially if they get audited by the IRS. In that case, their books become their Bible and will make all the difference to the IRS.”
Another important part is to know what deductions you can capture, whether they are in limbo or not. The only way to know for sure is to ask someone who studies the changes in the law. 
Reagan and three of his fellow Certified Public Accountants at Bowman & Reagan are enrolled agents, meaning they have been awarded the highest ranking possible by the IRS for knowledge of the agency’s policies and procedures.
“All CPAs know the tax laws but not necessarily IRS procedures,” Reagan said. “An enrolled agent studies the inner workings of the IRS. You get more respect from the IRS because they know you know the rules.”
That standing with the IRS has made dealing with tax problems Bowman & Reagan’s specialty. The firm is especially known for helping anyone who hasn’t filed in several years or owes the IRS a large balance. 
“We never quit going to school,” Reagan said. “I’m 60, and I’ve been studying tax law ever since I got out of college. CPAs and enrolled agents have continuing education requirements, but on top of that, things change all the time.”
The best advice for those unsure of what they can and can’t deduct by the end of the year in preparation for the April 15 filing deadline is to ask a tax accountant.
“Don’t get street corner advice,” Reagan said. “It’s worth whatever you pay for it. Nothing.”
Bowman & Reagan have been in business in Corpus Christi for 20 years. They are located at 1801 S. Alameda, Suite 200. Call (361) 888-7700 for more information. 

NEXT MONTH: Find out which extenders received Congressional approval and how to avoid tax scams.