Duvall & Associates, Inc.
BUSINESS ADVISOR NEWSLETTER
 

Tax provisions perplexing to professionals

- by Alan Duvall 

Published in Dayton Daily News January 1, 2006  

We readily accept the pace of a world spinning at an ever-quickening pace – consider electronics, business and unfortunately - tax laws.  

Politicians have embraced tax laws as a way to ameliorate temporary evils of society.  Temporary tax breaks are thus enacted for economic and natural crises as well as a cure-all for various societal issues. 

As a result, America has experienced a tremendous surge in Tylenol sales. 

Tax professionals already challenged by standard complexity of laws now have to cope with the headaches of statute time issues.   

There are “quick fix” laws such as 2005’s 1-year tax break for businesses investing in leasehold improvements and restaurant assets or last year’s hastily inserted provision allowing retroactive tsunami charitable contributions. 

Consider federal estate taxes, the rates of which are continuously reduced for each succeeding year until 2010 – when they mysteriously disappear altogether – only to rise like a phoenix restored to former glory in 2011.  The only way to avoid the tax completely is to die in 2010.

Research and development tax breaks are deliberately set to expire each year.  Because R&D credits are universally considered beneficial, no one wants them to disappear into tax purgatory.  Thus Congress is given an annual incentive to pass a tax law packed with new goodies that also includes a provision extending R&D credits another year.  The alternative is to risk the expiration of the cherished credit. 

Timing issues can profoundly impact otherwise mundane tax planning.   

The tax rates for capital gains and dividends, now reduced 15 percent, return to historical norms after 2008. 

Although Congress is currently debating a permanent rate reduction, such efforts may fail.  Given possibility of expiration, investors will be on a mad scramble to lock in lower rate gains before sunset provisions kick in. 

Enhanced first year depreciation write-offs for business asset purchases plummet in amounts from 2005 to 2006.  So businesses will find it advisable to buy and deduct in 2005, rather than wait and receive 2006’s extended deduction terms. 

Tax provisions phasing in and out create unnecessary chaos.  Be empathetic towards your tax advisors when they seem to take longer than necessary before answering your tax inquiry.

They may know the law, but not the law’s specific standing in any applicable year. 

Alan Duvall is a certified public accountant in Dayton.  Contact him at Alan@Duvallcpa.com.