Don’t look now, but the end of the year is upon us. Before ringing in the new, tax professionals are reminding businesses that it is time to account for the old. And it is never too early to start.
“Procrastination in tax planning is one of the biggest problems,” says John Scott, tax partner at HORNE LLP in Jackson. “It’s like getting a tooth pulled — you don’t want to think about it. Then you end up waiting too late.”
Bill Iupe, partner at Carr, Riggs & Ingram, LLC, in Ridgeland, says too often, clients approach him about a decision they have already made that has created a tax liability problem. By then, his options to address the issue are limited.
“If they had just talked to me, say, two months ago when it happened, maybe I could have helped,” he says
GO Zone going
Bryan Cherry, tax manager at HORNE, says tax regulations and accounting methods may change, but the basic ideas for late-year tax planning remain constant.
“Tax planning at near end-of-year focuses on the shifting of income and expenses — you want to defer income and accelerate expenses,” he says.
In that vein, this year in particular is one where procrastination can really hurt. Provisions in the Gulf Opportunity Zone Act have expired or are about to do so. Still, it is not too late to take advantage of the act’s benefits even under expired provisions.
For example, Scott points to the Katrina Work Opportunity Tax Credit. GO Zone offered the credit to businesses that hired employees living in the zone to work in the zone up to two years after the storm’s landfall.
That set the credit’s expiration at August 2007. It is no longer available. However, Scott says businesses that hired any workers during that time frame that did not claim the credit then can still claim it through December 31, 2007. Businesses in the zone should review their new-hires and see if any would qualify for the tax break.
“Even if a company hired an employee in the middle of August of this year, it may still get the credit,” he says.
GO Zone will provide the bonus depreciation on real property through the end of 2008, but the bonus depreciation for tangible personal property expires at the end of 2007. Scott says businesses need to be aware that the personal property bonus depreciation is soon to go away. Use it, or lose it.
Wait a minute
While early is better than late, Iupe says there is one tax issue that warrants a wait-see. Congress is currently looking at amending the Alternative Minimum Tax (AMT). Enacted in the 1960s, the tax was aimed at insuring that big investors paid their fair share of taxes. It limits the amount of deductions one can make as well as other limitations.
Iupe says the problem is that inflation was not indexed into the legislation. The tax affects those making $200,000 and above. That was big money in 1969, but not in 2007. Thus, middle income folks are feeling its bite, which was never the intent.
Iupe says Congress is looking at amending the tax, raising the minimum income so as to give middle income filers a break. If or when the amendment might be enacted is unknown.
According to Cherry, another thing businesses should take a long look at is accounting method. The cash basis and accrual methods of accounting each provide benefits, and either can be chosen. However, changing methods may be a problem. He says the IRS likes those that ask to change from cash to accrual, but being allowed to change from accrual to cash is not a given.
Don’t rush in
While shifting income and expenses is a tried-and-true tax planning strategy, it can have its pitfalls if one rushes in blindly.
“I had a client that was advised to buy a bigger truck in order to get a tax break,” Iupe says. “The thing was, he couldn’t afford the truck he had. Now, he’s taken out a loan on a piece of equipment he can’t afford, all in the name of getting a tax break.
“Cash-flow planning goes along with tax planning. That’s why it is so important to know where you are today, and where you’ll be months down the road. That’s the key thing, knowing where you are, so you need to start today.”
Contact MBJ staff writer Wally Northway at firstname.lastname@example.org.