Wood says that Congress has traditionally passed “extenders” to the Tax Code every year to let taxpayers know what provisions of the Code would be extended and which would not be. The system has become unmanageable. Businesses find themselves at the end of the year trying to decide what items to buy or not buy and whether the items can be capitalized or treated as expenses.
The uncertainty has put businesses at a real disadvantage. “Every year we have this drama” that businesses face at the end of the year about whether to buy and what to buy. If HR 636 is finally passed by both houses of Congress, it would make permanent a rule that a business could expense $500,000 each year without having to go through “the hassle of depreciation.” Wood opines that this would be a good thing for most businesses.
The process also is hard on tax accountants. And, opines Wood, it hampers all kinds of businesses that produce things other business might buy (or not buy) depending on what the tax rules might be in that particular year. “Small business is still a big driver of the economy,” so what those businesses will or won’t do for tax reasons is important.
Wood also notes that the IRS has made a change in Form 3115 relating to changes in accounting methods. The form in general relates to the same issue: What items a business may treat as expenses and what must be capitalized. For example, upkeep and maintenance may be treated as expenses. A new motor installed in a machine must be capitalized and depreciated over whatever the life of the machine might be. The change, says Wood, is that small businesses who meet certain tests would not have to file a Form 3115 as to certain items. However, says Wood, small business owners should talk to their tax accountants about this whole area.
For more information on the subject, please refer to Mr. Wood’s article in Forbes. Robert Wood is a tax attorney with Wood, LLP in San Francisco, California and spoke with The Tax Law Channel, an affiliate of The Legal Broadcast Network. The Legal Broadcast Network is a featured network of the Sequence Media Group.