Springfield Business Journal Editorial Vice President Eric Olson discusses the tax industry with accounting executives Bill Dunton of Abacus CPAs LLC, Bob Helm of Elliott, Robinson & Co. LLP and Erica Smith of BKD LLP.
Eric Olson: With tax season upon us, we’ll start with that. What are the top things for businesses to be mindful of?
Bill Dunton: The easiest things really are just good business practices. If they haven’t done this already, they need to make sure they’ve got a good accounting system. They’re accurately keeping track. It doesn’t have to be fancy if the businesses aren’t big; it doesn’t have to be some big formal computer system.
Olson: Are you coming across that, where businesses aren’t tracking well?
Dunton: Yes, and it doesn’t have to be little businesses. Big businesses have that problem.
Erica Smith: We’re all short staffed. It becomes an afterthought to doing their business. But it’s not a great business practice to have and will eventually bite you.
Dunton: Most businesses like what they do. (An owner) probably doesn’t really like accounting. That’s the last thing they want to do. It falls by the wayside. However, it may be one of the most important things they need to do to keep their business afloat.
Bob Helm: They can do very little about last year, so planning in advance is such a huge deal. A lot of people believe they can do it between Christmas and New Year, which is the worst time to do it. Saving taxes should not be the top thing on your list every year. It is a secondary thing. Good business practices, running your business smart, those are really the key things.
Olson: Isn’t that what every business owner wants, to save money on their taxes?
Dunton: Nobody loves paying taxes. You’ve got to make a good business decision first. We’ll have clients that come in and sit down at our conference rooms and say, “OK, I don’t want to pay any tax.” Well, you’re going to spend a dollar to save 40 cents. Yes, it’s going to reduce your taxes, but you can keep 60 cents of every dollar or you can spend that dollar.
Helm: You also have to be very careful about paying no taxes this year and getting hit really hard with it next year. You have to look at the long-term effect. You can save $50,000 this year that’ll cost you $100,000 next year, if you’re not careful.
Smith: We were doing a lot of that planning last fall. We thought tax rates were going up. We were doing what we call reverse income tax planning. It seemed counterintuitive. But we’re still in that boat. You’ve got to ask about “Build Back Better.” That’s probably not going to happen, but there’s still a good chance that something could happen. That deduction in 2022 could save you an additional 10% in 2023. A lot of what we do is tax deferral. It’s not permanent tax savings.
Olson: Speaking of last fall, when you were working with clients and preparing for this spring with the federal aid and the Paycheck Protection Program money, was that a big issue that you had to sort through?
Helm: The PPP, at least in theory, was not going to impact their taxes because if you plan correctly, you got all that forgiven, and it was a nontaxing event. The (Employee Retention Credit) is a whole different thing. That one does affect your income taxes. ERC is a taxable event. They’re already having to pay income taxes on it. It’s free money, so you’ll take it, but a lot of people are hurting cash flow-wise.
Dunton: If you’ve got $100,000 back in the ERC … in a roundabout way, it becomes taxed.
Smith: We are running into timing differences. They haven’t processed those refunds yet, so you don’t have your dollar back.
Olson: What are the biggest issues in dealing with the IRS?
Helm: The key is getting them to respond to correspondence. I’ve read that as many as 10 million pieces of mail are waiting to be processed. And it’s probably 12 [million] today, no telling; I mean, it’s going up every day. Whereas usually there are about a million, million and a half. That’s how far behind they are. That’s the problem.
Dunton: Their inactivity is causing us difficulty with our clients because they’re calling, “Hey, I got another notice on this. I thought you told me you took care of it.” You can explain that and most people get it, but then they’re like, “What can I do to help?” There’s nothing. All we can do is sit here and wait for them to process that. And then the pile’s growing. How did it get this way? Well, during COVID they shut down their offices and mail went to warehouses and just sat there. Nobody was processing anything because everybody was at home or working from home.
Olson: What’s the expectation as a result of these delays?
Dunton: It doesn’t affect filing, so we can file on time. It just affects the processing of it.
Helm: The idea behind filing a tax return, you want to do as much electronically as you can. If you send it in the mail, then it’s going into that stack that Bill’s talking about.
Dunton: All this “let’s extend the deadline” deal is just a waste of time. When they extend it blanket for everybody, it just screws up the system.
Smith: I don’t want people to take what we’re saying and ignore notices from the IRS. Certainly, make your accountants aware. But be patient.
Dunton: They had some of this in the “Build Back Better” plan but – and I would not want to be the guy to have to do it – that whole system needs to be revised. I have no idea how they’re going to do it, when they’re going to do it.
Smith: They’re using computer systems that are 20 to 30 years old. I read an article on Friday that they had a machine … that could scan an envelope and tell if there was a check in it so that they could deposit your money more quickly. Well, that machine broke in 2021, as well. So they literally had employees holding up envelopes to see if there was a check in it.
Olson: On these proposed tax code changes, have you looked into those? What do you find being most favorable and unfavorable for businesses, whether they pass or not?
Helm: Very little changed. There’s some benefits for child tax credits, things like that, the really simple stuff. But the major things really didn’t change significantly to have an impact one way or another. What the current administration was trying to get passed by the end of 2021, they were unsuccessful in doing that. The odds of the act being passed in 2022, I think it’s unlikely to occur. It’s an election year. I’ve done this for 40 years. I’ve seen very few big tax law changes in the year of an election.
Smith: They’ve got some other issues to address. They had to keep the government open. Then they have some other things they want to tackle, and then they’ll go home to campaign.
Dunton: Some of those things in there, especially stuff around the estate tax stuff, would’ve almost ended family wealth. It was going to be potentially like a 70% hit … to go to the next generation with capital gains and things that they had put in there. Having a family wealth transfer would not have existed if those laws had passed.
Helm: And it doesn’t matter what party you are; you’re concerned about that, both the capital gains piece and the wealth piece. The wealth piece was huge.
Smith: There were some pretty extreme proposals. I mean, we’re talking about going back 30 years to wealth transfer rules, right? If you tried to transfer anything over $1 million, some people wanted to tax that at 50%.
Dunton: And then your death was deemed to be an act of sale. So, if I own an office building and I died, it was like I sold it, we’d have to pay capital gains at that date. Even though we still have the building. So then what we’d have to do, you’d have to sell the building to get enough cash to pay the tax. It would’ve just destroyed any family estate planning or wealth transfer.
Smith: Our current estate transfer laws are very favorable, but those are set to end in 2025. That discussion shouldn’t end. That’s what I tell my clients. If you’re anywhere near retirement or near end of life, you should be talking about those transfer strategies now, because you’ve effectively got two or three years to work that out. If you’ve never done an estate plan, now is the time.
Olson: I read the act was intended to provide relief tax relief to the middle and lower class from a tax policy standpoint. Did you see that happening?
Smith: Providing tax credits for child care, that’s a big one for middle class. If you can find a way to pay for their child care, that can increase their income quite a bit. There were no direct changes to tax rates, per se, for that. They were honest about that generally; when (President Joe Biden) said there’s no tax changes for people under that $400,000 level, that was generally the case. They didn’t really touch the nuts and bolts of what you report on your return.
Helm: There’s a significant percentage of the population that pays no income tax, and they always talk about hurting the lower and middle class. There’s a significant percentage of those people that pay none. In fact, they have refundable credits, so they’re actually getting a benefit by being there. It’s very misleading sometimes what is projected out of who gets hurt the most. The high-income people pay the majority of the tax. If you say you don’t pay any income tax, it probably means you made no money … or you have some kind of a carryover that offset all of that. It’s just not really possible in our current tax system to be able to avoid taxes if you make money.
Dunton: The child tax credits and those types of things, we can’t reduce tax rates any lower on that lower level. They’re already not paying any tax, so we can make it zero, but they’re already paying zero. It doesn’t benefit them in any way. It’s hard within the taxing system at this point to benefit low- to middle-income people without giving them some type of a refundable credit, which is basically just giving them money.
Smith: Or stop requiring payroll taxes.
Olson: We talked about the how the pandemic is affecting the IRS. What about at your firms? How is the staffing and personnel side of things going for you guys?
Smith: At this point, no industry is immune to the “Great Resignation.” Our head count locally is higher than it’s ever been, but that comes with a lot of new talent. Having continuous, highly trained CPAs, they’re in high demand.
Dunton: We try to take everyone we can from (BKD). [Laughs]
Helm: We’re hit the same way.
Smith: Our clients want our talent.
Helm: We’re not losing them typically to other CPA firms. They’re changing careers.
Dunton: They go to private accounting, or they may go somewhere else.
Smith: You can read a lot online about early retirements.
Helm: During COVID, moms had to stay home and teach and be the educator for the kids. You’ve seen that significantly happening in an industry that it’s shocking that you have two men and one woman sitting here [for the roundtable discussion] today because that’s exactly the opposite of what the population in our industry is now. It’s 70-30 women. It’s impactful.
Olson: Was that gender shift a slow transition?
Helm: It’s been a slow deal. When I entered the profession in 1981, it was 70% male, 30% female. Y2K caused a lot of that change. Then it just happened.
Dunton: In the early ’90s, it was 50-50. The recruiting classes maybe had not changed so much through the firms yet, but you were starting to see recruiting was 50-50, and you really had the ladies do a much better job of getting through school with some level of maturity than most men. You had to work hard to find good male candidates. It hasn’t limited our ability or our talent; it’s just shifted.
Smith: The profession is in a war for talent. We’re competing with finance, investment banking. Certainly, I think it’s taking what’s historically been some of our pool of majors. There’s a big discussion in our industry right now. To be CPA eligible in Missouri, you have to have completed five years of school. Is that the right thing now? My sister is a college educator, not in accounting, but they are actively recruiting students and the next five years is going to be the lowest population of students in college, like in the last 30 years. So, they’re at a war for students, and part of that’s just population. What we’re seeing is that the supply is not currently meeting the demand.
Dunton: The bad part for these younger people is our profession gets a little bit of a bad rap from a perception standpoint. Accounting can be a very fulfilling profession, and it’s not necessarily for just the geeks. I mean, yes, accountants can be geeks, but there’s a lot of opportunity and it’s a wide-open field to do what you want to do within a public accounting firm.
Olson: What are some of the career pathways that are opening up that are newer or different?
Dunton: The biggest thing just accounting is the language of business. You’ll be three steps ahead of any of your competitors if you have an accounting degree and you don’t even want to be an accountant. If you’re going into marketing and you go into a big company and they say, “Hey, give me a marketing budget,” you’re going to know at least somewhat what it is, where the marketing majors are not going to have a clue.
Helm: Reading and understanding your financial statements, how to run the business – that’s a big deal.
Dunton: There are lots of CPAs who are CEOs of large companies.
Olson: What’s your take on assigning tax codes to cryptocurrency and its general usage in the community?
Smith: The IRS has been pretty clear. Have people always done what the IRS says? No. Crypto is not a currency, so we’re not going to treat it like the U.S. dollar. I don’t see that changing anytime soon. From the IRS perspective, everything else is property. We have pretty clear – as clear as the IRS can get – rules around what is a taxable property exchange.
Dunton: She’s giving you the IRS perspective, which is how we have to deal with it.
Smith: We’re not going to treat it much differently than if you have stocks or bonds or anything else. Where the IRS can make sure that people are properly reporting is require those brokers who are handling all those wallets to report that to them. That’s what they’ve done for the first time in 2021.
Excerpts by Digital Editor Geoff Pickle, email@example.com.
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