A Conversation With ... Jeff Shore

The Corporate Transparency Act went into effect this year and many small-business owners are required to file reports detailing ownership by Jan. 1, 2025. What is the act, and who is required to file?
The intention is to capture information for businesses with the whole purpose of it being used as a database for financial crimes, money laundering and things of that nature. It’s intended for small businesses, any LLC, any corporation that’s of a certain size. They want to know who the owners are. The database then is accessible by law enforcement nationally and internationally. It is accessible by casinos, ironically, and also monetary banks and certain financial institutions. It had been put on moratorium for a couple of years, and then the Financial Crimes and Enforcement Network, which is a government agency, said we’ve got to do this. There is a lawsuit that was put in place by the National Small Business Association, and they won the lawsuit, which put their members on hold on not having to file this form. We’ve been telling our clients it’s something we’re going to have to do. About two months ago, the president of the (Association of International Certified Professional Accountants), Barry Melancon, indicated that in a Q&A session that the United States was behind mostly European countries that have already put this process in place. So, what that told me was the chances of it being overturned probably are not that good. Anybody who’s already regulated somewhere else is exempt. In our space, we may have one client that we touch, but they may have three, four, five, six LLCs, and therefore each one of those will have to file their own form. When they have multiple entities, they can get their own FinCEN number, and then the entities that they’re involved with do not need all their own information. Where it’s going to get difficult is determining who has to do it versus who does not. That’s where the legal ramifications come in because you’ve got to discern who qualifies, who doesn’t qualify. It’s not only the owners in some cases. It could also be certain advisers who have a significant involvement with the organization. So, for example, as a CPA, we might be part of the decision-making and it’s possible we may have to be included in that document, even though we don’t physically own the entity. It’s pretty onerous, and if you don’t do it at all, the fines are significant.

On the tax side of your advising, the Tax Cuts and Jobs Act is set to sunset at the end of 2025. What impacts will this have on businesses and what should owners do to prepare?
The two things that I can think of that are business owner focused are going to be the tax rates that they pay, whether it be as a C-corp or whether they’re a flow-through entity, and then secondarily is the depreciation piece. In the TCJA, bonus depreciation was 100% through last year, and then it went to 80% and then 60% this year, and then it’ll be 40% and then zero. We delayed filing tax returns this spring with hopes that that would revert back to 100% bonus depreciation. And it didn’t happen. We haven’t done Section 179 expensing for many years, so now that the bonus was 80%, now we’re doing 179 instead of bonus. Even though the TCJA will expire at the end of 2025, bonus appreciation started early. One other wrinkle doesn’t affect a lot of clients, but it does affect a handful of our clients: We have some clients doing research and development credits. They’re creating a new product or they’re creating a new service, and so they get a credit for a percentage of their payroll and other expenses that qualify. Up until 2023, those expenses were deductible. Starting in 2023, you have to capitalize those research and experimentation expenses, which are different than what creates a credit. Let’s say they had $1 million of R&D expenses that qualify for the credit, which turned into about a $50,000 credit, but now they’re having to capitalize on that $1 million in expenses plus overhead and other costs. That goes on to their balance sheet, and then amortize over the next five and a half years, all of a sudden we have this imbalance. That was one of the things in the TCJA that expired early that’s impacting our clients. Starting in 2023, Missouri piggybacked onto the federal. So, clients that are now in that space not only get a federal credit, but they now get a state credit. In the TCJA, they also introduced 199 qualified business income deduction for most businesses. In essence, only 80% of their business was being taxed. That begins to wash away. It was phased out for high earners, it was phased out for medical, legal, accounting, investment, but our manufacturing and services clients saved close to 20%. For the pass-through entities, they’re going to see higher brackets. The income tax 10%, 12%, 22%, 24%, all the way to 37%, those all move up a bit. The standard deduction goes back to about half, so those all will mean more taxes for our flow-through clients too. We’re going to see a pretty significant tax increase for most of our clients starting in 2026.

What are the best strategies for preparing for these increases in taxes?
As I tell my clients, taxes don’t happen once a year and then you’re done. Taxes are a lifelong journey. When I’m working with my clients, I’m trying to think not only now, but also 5, 10, 15 years down the road and put that exit planning hat on. You can save on taxes now, but is that the right answer? I will many times slow down depreciation to save it for the future with the hopes that it’ll be at a deduction at a higher rate down road. I’m a second-generation CPA. My dad had a practice and then I took over his clients. We’re still serving clients that he had from the 1980s. I had a client tell me this morning that we’re almost in a covenant type relationship because we’re moving them to a certain goal and we’re going to be there to the end.