Looking Forward to Uncertainty

William J. Killory, CPA, Partner (Apr, 2015)

With our annual tax filing season ending and returns safely filed or extended, we at Dermody, Burke & Brown are breathing a collective sigh of relief as we look forward to a little rest and recreation.  This year seemed tougher than most as year-end planning was not solidified until the last two weeks of 2014 when the traditional expiring provisions were retroactively enacted.  No sooner than they were enacted they expired again on December 31.

We are used to the complications of the tax code and are blessed to have many capable professionals that work closely with our clients to guide them through the complexity.  The tangible property regulations that were finalized in late 2013, effective for 2014, were a great example of analyzing complicated regulations and determining how they applied to our clients.  For the most part our clients have been able to utilize the expensing elections under Section 179 and/or bonus depreciation so they were largely unaffected by these regulations, other than adopting safe harbor capitalization policies.  For some clients it was an opportunity to adopt some of the beneficial aspects of the regulations and clean up the fixed asset schedules, while also getting a tax benefit through allowable changes in accounting methods.

We are faced with the same planning dilemma that we experienced last year.  Many of the beneficial tax provisions, such as the enhanced expensing election ($500,000 vs. $25,000) and the ability to write off half of new purchases in the year they are placed in service, don’t technically exist.  Benefits such as the Worker Opportunity Tax Credit that affect certain veteran and targeted economic demographics are also gone.  The ability to directly donate your required minimum distribution from your IRA to a charity without including it in gross income is similarly not currently in effect.

So how do we go about planning for this year with all this uncertainty around us?  While the tax consequence of a particular transaction is important it should not be the motivating factor in whether you do something.  Investment in fixed assets should be based on expected return on investment.  The fixed asset will be depreciated, it’s just a question of how long. Everything in tax law is a timing issue so eventually the tax benefit will be realized.  If you plan on making a charitable donation and you must also take a required minimum distribution – there is no reason it cannot come directly from your IRA.  Similarly, if you plan on hiring someone and they happen to be in one of the WOTC categories, keep track of the information as you will be required to get that person certified by a state agency.  Because of the enactment of last year’s law, certification was extended until April 30 of this year for those affected by WOTC and if reenacted, a similar extension is likely for 2015.

Tax planning is one element of looking toward the future.  Long-term planning looks to retirement and estate planning.  Mid-term planning looks ahead a few years into the future, while short-term planning is looking year by year.  Each phase has a significant tax element related to it, but is not the driving force.  The level of uncertainty, both of how events unfold and the vagaries of the tax law, make the planning less concrete especially as the time horizon expands.  It would be nice to be more certain in our yearly planning, but the current environment in Washington makes that rather difficult.  Our best educated guess is that Congress will once again extend the extenders and it will be passed into law, but we don’t know when.  Don’t plan on it, but certainly prepare to benefit if it does pass.

Now that this tax season has ended, we at Dermody, Burke & Brown thank you for your continued support and loyalty.  We will keep our eye on the tax law and how the many changes affect you to take the best advantage for your particular circumstance.

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