Taxes Will Not Be The Death Of You
Mar 23, 2018 01:14PM
By Anthony Flott
Accounting firm Lacey & Associates has been around plenty long. Not nearly as long, though, as the document that hangs on its office reception wall—a 1913 Federal Form 1040 Income Tax Return.
That’s the first return issued following passage of the 16th Amendment to the U.S. Constitution, which allowed Congress to levy an income tax without apportioning it among the states or basing it on the U.S. Census.
The return is a mere two pages long. Figuring taxable income required completion of seven lines. Seven more lines were needed to figure all deductions.
“There wasn’t much to it,” Doug Lacey says with a chuckle.
Not exactly the case more than a century later. Over the years, tax rates have risen and tax forms have grown more numerous and complicated. To the delight of many (and chagrin of many others), Congress and President Donald Trump addressed that last December with passage of the Tax Cuts and Jobs Act, one of the most far-reaching tax reform bills ever.
Doug, president of Lacey & Associates and an accountant since the 1970s, has never seen anything like it.
“It’s about as large of a change as I can remember,” he says. “There’s a lot to it, both looking at it from individual tax returns and business tax returns. Every year there would be some small changes…but nothing as big in scope as what we have starting in 2018.”
While the changes seem likely to make filing tax returns easier for the majority of individuals, they also might call for more guidance for businesses. In fact, it might cause some companies to change their very filing status.
“It gives us the opportunity to do a lot of tax planning and meet with the clients more than we probably would have,” Doug says. “To talk to them about how these changes affect them and whether to do anything different.”
With these many changes, some may worry about being audited, but accountant Scott Lacey says business owners, especially small business owners, can relax.
“There could be even fewer audits because they have simplified the tax code,” Scott says. “And typically the IRS doesn’t audit small businesses.”
Lacey’s firm has roots to the 1940s when his father, George, began providing bookkeeping and tax services part time. Doug joined him in 1977. In 1991 he began Lacey & Associates. His son, Scott, joined the firm in 2005 and is happy to be part of the family-run company.
“I realized I’m going to get more pride out of providing this service than I will staying at a large corporation,” says Scott, who previously worked in finance at First Data Corp. “The thing that I like the most about the shift is, in a smaller company, you have to have your hands in all the pots, you have to deal with the computer company, you have to pay the bills, you have to make the coffee, you have to do everything. I feel like I’m making more of an impact, but you also don’t have typical 9-5 hours, so you’re working nights and weekends quite a bit.”
Located in Ralston, the company will file 2017 returns for about 1,200 individuals and 150 businesses.
“I still get to work with some of George’s clients, or their children,” Scott says. “It’s kind of an honor.”
The Laceys have waded through multiple tax changes. They say the most important thing to know about the 2018 tax changes is that not everything is known.
The Laceys have done all they can to understand the changes, reviewing the bill, listening to online podcasts from tax experts, and reading summaries published in various industry newsletters and periodicals.
“There are certain things that even people running the webinars don’t understand or say we have to wait and see some more examples of how this works,” Doug says. “We’ll have to look at it and see the ramifications of all the different changes.”
Scott says the company will continue to keep on top of the changes.
“Sometimes the [government] adjusts the new laws throughout the year. I fully expect to see some adjustments throughout this summer and fall.”
That said, Doug expects several of the changes to have significant impact. For businesses, he points first to drops in the tax rate.
For C corporations, which pay income tax, rates drop from a high of 35 percent to a flat rate of 21 percent. “That’s why you’re seeing the stock market doing so well and seeing some corporations bring some of their different locations out of Europe, Africa, and South America back to the United States,” Doug says. “They figured out what it’s going to save them, and they’re trying to bring it back to the United States.”
For S corporations, which pass corporate income, losses, deductions, and credits through to their shareholders, the tax rate drops to a flat 20 percent.
The changes, Doug says, might lead some of his clients to switch from a C-corp. to an S-corp. “Or vice versa,” he adds.
Also of significance, Doug says, is a change to equipment write offs. Previously, that came to 50 percent of what the equipment cost. That’s been changed to 100 percent of the cost.
For individuals, Doug cites several changes as most important:
A drop in all tax brackets and new withholding tables.
A raise in the standard deduction for married couples filing a joint return from $12,700 to $24,000. That change alone, Doug says, is likely to lead most people to forgo itemizing deductions as in most cases they won’t exceed $24,000. “The IRS anticipates that people using the itemized deductions will go from 30 to 10 percent.”
The $4,150 personal exemption is being eliminated.
An increase in the child tax credit from $1,000 to $2,000 per child. The amount of the credit that is refundable increases to $1,400.
For now, the Laceys and their team are focused on handling the rush of 2017 returns. Lacey & Associates will work round the clock to make sure clients receive the best service possible.
But though definite answers won’t come until later this year, he knows the questions will come now.
“The clients are going to come in and say, ‘How does this new tax law affect my income tax?’” Doug says. “We’re going to tell them a few things, but there’s quite a few complex issues here, especially in the business area, that we can’t really say right off the top of our head how it’s going to affect them.”
This article was printed in the April/May 2018 edition of B2B.