Two Perspectives on Recent Tax Reforms

It is always a worthy investment of one’s time to review what tax regulation changes may have occurred at the close of the calendar year, and 2014 is no exception.

U.S. Sen. Jack Reed was kind enough to weigh in on some of the issues and his thoughts on the direction of the economy.    Patricia A. Thomspon, CPA, MST, PFS, a partner at Piccerelli, Gilstein & Company, LLP in Providence, and member of RISCPA’s Federal & State Taxation Committee, also shared her insight with us regarding some of those changes. 

WC: Could you comment on the importance of the Tangible Property Regulation that was passed late in the year? I have heard it described as a great opportunity for business owners to take additional deductions, as well as partial asset write-offs.

Sen. Reed: We need a comprehensive reform of the tax code to make it reasonable for middle-class families and Main Street businesses.  Last July, after nearly a decade of work, the IRS issued final Tangible Property Regulations governing when taxpayers can take deductions or depreciate equipment and real estate. These regulations replace a patchwork of temporary rules and will have a wide ranging impact.  We hope that they provide further clarity to taxpayers, especially small businesses, to help them determine their deductions related to tangible real and personal property, but this is complex information.  I look forward to hearing feedback from RISCPA about how the new regulations are working.

WC: On Dec. 19, President Obama signed an Extender Bill reinstating many tax provisions retro-active to January 1, 2014. How is this seen as significant to the business community?
Sen. Reed: I would have preferred these extenders to have been passed much earlier in the year to provide more certainty to individuals and businesses.  However, the extension of many of these provisions was important in order to provide relief to taxpayers.  These provisions include the research and development credit and the extension of credits that help families afford college, help keep families in their homes and promote the production of renewable energy.
WC: In general, where do you see positive signs for the small business community, particularly here in RI?  Why should RI small business owners be regaining some confidence that might have been shaken by a sluggish economy in recent years?

Sen. Reed: At the national level and in Rhode Island, the economy is improving, but there’s still work to be done.  In December, the national unemployment rate declined to 5.6 percent and Rhode Island is one of eight states in which the unemployment rate dropped more than two percentage points in the last year.  We were number three in the Northeast for job growth in 2014 at 1.63 percent and we are tied with Massachusetts as number one for utility energy efficiency programs, investments that help the state’s business owners by lowering energy bills and increasing economic activity from new clean energy jobs.  Finally, executives in New England are cautiously optimistic about the future: according to the 2015 National Business Trends Survey, 41 percent of regional executives believe the 2015 economy will improve from last year, 57 percent are expected to add staff in 2015, 81 percent plan to award wage/salary increases, and 58 percent indicated they would be providing additional training and development programs to their existing workforce. There are some positive economic signs that we need to monitor, support, and build on in Rhode Island, but there is still more work to do so that the middle class feels secure and the economy can keep growing.

WC: What were some meaningful tax regulation changes enacted as 2014 drew to a close?

Thompson: The most significant tax regulation that will impact the 2014 tax return for businesses is the tangible property regulation.  This regulation provides a great opportunity for business owners to take additional deductions in 2014.  Business owners are encouraged to review their depreciation schedules to see if the items capitalized in prior years should have been capitalized under the new regulation.  If not, they can be written off in 2014.  The regulation also allows for partial asset write-offs, which permit the business to write-off a portion of its building if that portion has been replaced and the replacement has been capitalized.  There are required attachments for the 2014 tax return to be able to take advantage of this regulation.  There are many special rules in the regulation, so it is important to review them before filing the 2014 tax returns.
WC: Could you elaborate on the so-called “Extender Bill?”

Thompson: On December 19, 2014, the President signed the Extender Bill reinstating many tax provisions that expired on December 31, 2013.  Some of the provisions include bonus depreciation, increased Section 179 to $500,000, and allowing certain taxpayers to make charitable contributions directly from their IRA accounts.  The President also signed the Achieving a Better Life Experience Act (ABLE) which provides certain taxpayers who became disabled before age 26 the ability to establish a special account of up to $100,000 for disability expenses.  These expenses are very broad and as long as the distributions from the account are used for disability-related expenses, the earnings are tax free. The contributions are nondeductible and will be considered a completed gift.  This account, up to the $100,000 limit, will not be considered when evaluating if the taxpayer is eligible for SSI and Medicaid. Each state establishes its own regulations to allow financial institutions to open these types of accounts.  If Rhode Island decides to allow the accounts, we can expect the regulations sometime during 2015.  We should keep an eye on this.
WC: As 2015 unfolds, are there areas that CPAs should pay close attention to, in terms of specific changes that could impact their day-to-day work?

Thompson: Rhode Island follows federal Section 179 limits. Once federal legislation was signed, Rhode Island automatically increased its Section 179.  Rhode Island Section 179 was limited to $25,000 and is now $500,000.  Taxpayers purchasing health insurance on the state exchange will receive form 1095-A and be required to complete Form 8962 attaching it to the personal income tax return Form 1040.  Form 8962 calculates the premium tax credit and reconciles any advance premium tax credit.  Tax return preparers will also have to determine if the individual taxpayer has minimum essential health insurance coverage.  If they have the coverage for the entire year, box 61 is checked.  If not, a new Form 8965 is completed to claim an exemption from the individual shared responsibility penalty.  If the taxpayer does not have the required coverage and does not qualify for an exemption, a worksheet in Form 8965 is required to be completed and a pay a shared responsibility payment.  This year, CPAs will be spending more time on depreciation and the capitalization regulations.

WC: What is your advice for CPAs in terms of staying informed about such changes, or, expressing their opinions about changes in the future -- before they happen?

Thompson: The Rhode Island Society of CPAs has excellent CPE sessions to provide CPAs with the information they need to remain current in tax topics. The AICPA also offers excellent CPE sessions, many of which are presented in webcasts and webinars. The AICPA Tax Division also has frequent Power Hour sessions to provide CPAs with current tax information and frequently contacts the IRS and Congress regarding tax issues that impact our profession and our clients.  I highly recommend volunteering for the AICPA Tax Division Committees and the Rhode Island Society of CPAs Tax Committee.

RISCPA would like to congratulate Pat Thompson on her receipt of the 2014 Arthur Dixon Memorial Award from the AICPA, it is the highest honor bestowed by the accounting profession in the area of taxation.  Outstanding honor Pat!