Mauldin & Jenkins Outlines 2011 Tax Challenges
Tuesday, March 6th, 2012
With filing deadlines for state and federal tax returns rapidly approaching, business owners face a number of challenges in preparing and paying 2011 taxes. Among them are expanded reporting requirements, last-minute changes to the tax code and, in general, increasing complexity in the tax system.
"In my opinion there is more change and uncertainty in the tax system now than at any other time since I've been in practice, and I've been in practice for 31 years," said John McDuffie, CPA, a partner with Mauldin & Jenkins LLC and the partner-in-charge of the firm’s Albany office.
In terms of recent changes, two new questions related to 1099 reporting requirements that were added in January 2012 are a good example. Businesses must now answer whether they are required to file 1099s and if yes, were 1099s filed. The Form 1099 series is used to report various types of income other than wages, salaries, and tips, typically paid to unincorporated independent contractors for legal, accounting, marketing and other services.
"The new 1099 questions affect a lot of businesses. They are intended to increase compliance in terms of issuing 1099s and ensure independent contractors are paying the proper amount of income tax," McDuffie said.
Rules for depreciating new assets are another example of a 2011 change in the tax code. New assets acquired in 2011 with less than a 20-year useful life now receive 100 percent bonus depreciation.
"It's a new treatment for assets such as a new tractor or cotton picker. It means the whole cost of the asset can be written off in the purchase year," McDuffie said.
Mauldin & Jenkins is a full-service accounting firm, which was founded in Albany more than 90 years ago. It now has four other offices across Georgia, Florida and Alabama and 240 employees. The firm specializes in providing audit, accounting and tax services for closely held businesses and their owners.
Tax Planning for the Year Ahead
According to McDuffie, annual tax planning is one of Mauldin & Jenkins' areas of expertise. The firm meets with clients early in the year to identify tax opportunities and risks based on the prior fiscal-year results and again at the end of the year to avoid any possible surprises.
"In terms of tax planning for 2012, key federal tax-code decisions will be made based on the outcome of elections in November," McDuffie said. "We may see new tax legislation following the election and in the absence of new legislation, we will see tax rates increase in 2013."
That's because several important provisions of the federal tax code are set to expire at the end of 2012, including the Bush tax cuts. While the Bush tax cuts lowered the marginal tax rates for nearly all U.S. taxpayers, there has been considerable controversy over their impact on the economy, the U.S. budget deficit and income inequality in the U.S.
The 15 percent tax rate on dividend income also is set to expire at the end of 2012. If dividend income is once again taxed as ordinary income, tax rates could be as high as 39.6 percent, according to McDuffie. The $5 million exemption on the estate and gift tax will also expire at year-end and absent action by Congress, would return to a $1 million exemption per individual.
"From an estate planning standpoint, business owners should meet with their CPA to consider the significant planning opportunities available with wealth transfers in 2012," McDuffie said.
Long-Term Planning in a Changing Tax Environment
Business owners face significant uncertainty in planning five to 10 years out from a tax perspective. The emotional and political nature of tax policy and the partisan divide in Washington have increased the number of changes to and complexity of the tax code.
"Business leaders need stable tax policy to plan and make decisions that can affect their operations for many years," McDuffie said.
Decisions on how to structure the sale, purchase or start-up of a business are particularly critical from a tax perspective. According to McDuffie, the objectives of the business operations determine the best structure for the entity – whether it is a sole proprietorship, partnership, S corporation or C corporation.
"We sit down with our clients and talk through their operations and business plans. That's the only way to determine the most advantageous structure from a tax perspective," McDuffie said.
More information on Mauldin & Jenkins is available at www.mjcpa.com or call (229) 446-3600.