The 2021 busy season just got busier for tax professionals. Working through the results of the recent election, new tax provisions resulting from an ongoing pandemic, and more, business owners will have to be prepared to look at things a little differently in the year ahead.

Chris Axene, a principal on Rea’s federal tax team, explains what accountants and tax pros are working through today, what businesses can expect going forward, and how to plan for these changes.

Listen to this episode of unsuitable to learn:

• The major updates made to tax provisions that impact 2021
• What to look out for with Biden’s plan
• The deadlines this year and advice for the busy season

Learn more about this topic:

• Listen: Tax Pros Tackle CARES Act, PPP & ERC This Busy Season
• Read: How The Consolidated Appropriations Act Will Impact Your State & Local Tax Filings
• Read: Consolidated Appropriations Act of 2021 | Tax Provisions Explained

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Doug Houser:

From Rea & Associates studio, this is unsuitable, a management financial services podcast for entrepreneurs, tenured business leaders, and others who are ready to look beyond the suit and tie culture for meaningful measurable results. I'm Doug Houser. On this weekly podcast, thought leaders and business professionals break down complicated and mundane topics and give you the tips and insight you actually need to grow as a leader, while helping your organization to grow and thrive. If you haven't already, hit the subscribe button so you don't miss future episodes. And if you want access to even more information, show notes, and exclusive content, visit our website at www.reacpa.com/podcast, and sign up for updates.

Christopher Axene:

Hey, Doug. How's it going?

Doug:

Good. Good to have you back, as always.

Christopher:

Yep, thanks for having me here.

Doug:

Yeah, you're catching up to Joe, I think, is the most frequent guest here. You're going to win the Alec Baldwin award, as he does for SNL and, I think, for the most number of times hosting or guesting.

Christopher:

Fantastic. I assume there's a suitable prize for that?

Doug:

Yes, yes.

Christopher:

… with an unsuitable prize?

Doug:

A round of golf and a glass of bourbon with said host here, so that's your prize.

Christopher:

Cheers. Looking forward to that.

Doug:

Yes, me too. Enough of this. But speaking of enough of something, gosh, it seems like from a tax perspective, the thing that we have to get used to right now is change, right? Be flexible, and no matter what it is today, it's going to change tomorrow. Is that the theme we're under at this point?

Christopher:

Yeah, absolutely. Well, and quite frankly, this is, I think, my 26th year of practice, and my memory might be a little fuzzy, but it feels like, maybe, the first 10 years of the change didn't quite happen as frequently, and then the last 16, that's what you expect. The fact that something might stay the same for more than 18 months is just unheard of, so you just understand what the rules are for this filing season are likely going to be different a year from now.

Doug:

It's crazy. Obviously, I'm no tax expert. I know enough to be dangerous, basically, is when I need to come and find you and get the real expert involved. But it just seems like to that point, we've got so many more provisions that change abruptly, or sunset, or all these different things that are written in. The tax code is being used more and more, I guess, for policy, it seems to me than it ever has been. Is that your thought as well?

Christopher:

It is, and particularly, when you have a more liberal, progressive government that feels that that's the answer to how we solve issues that we have in our society, then they're going to use the leavers that they have access to accomplish that. And the reality is, is how we raise revenue is via taxes, first and foremost, and so the code is then used to incentivize the areas where they want to do that, and penalize the other areas where they need to raise the money to pay for what they want the government to provide.

Doug:

Yeah. It's always a balance and never one that satisfies everybody, that's for sure.

Christopher:

That's right.

Doug:

Christopher:

Doug:

Yeah. And of course the PPP for our business owners, I mean, I think everybody was all over that, and that will not be treated as taxable income. There is, obviously, some consternation about that for a while, but they did finally change that in the CAA, so you've got a big windfall there, and then all the various things with employee retention credits and all these different business provisions as well. Any other major updates that are, at least, more semi-permanent to tax provisions that we saw that will have an impact for '21?

Christopher:

Yeah. So certainly, the CAA did some extensions of things that are perennially on an extensive list for tax benefits, credits, et cetera. A couple of the big ones, Congress had been playing with the deduction for medical expenses, which is claimed as an itemized deduction. And they had raised the floor on how much you can deduct or set another way as the first dollar that you can deduct, the floor above that amount where you get a deduction, had gone out for a couple of years and then had it retroactively or temporarily been reduced back to what it used to be, which is 7.5% of your AGI, which is a number from the front part of the first page of your tax return.

Doug:

Christopher:

Doug:

It's like fashion, right?

Christopher:

You got to wait five or 10 years, and then go in your drawer and pull it back out to say, "Oh, this is what we did when the tax law used to be this." And, case in point, the Biden administration, they have some goals and things that they want to incentivize and to help the middle class, and I think I agree it will remain to be seen, just simply because of the tenuous control they have on the Senate. It's basically a one-vote margin as to what they can ultimately pass. But on the individual side, basically, President Biden wants to go back to a lot of the tax law that existed when he was vice president under President Obama. So we'd have a top tax rate of 39.6% on the individual side. There would be a limit on itemized deductions for higher-income individuals. And right now, he has that defined as anybody that makes $400,000 and above.

And so that remains to be seen what will happen but to tie it back to the tax planning that we did when the state exemption was a million dollars or three million dollars, and A-B trusts and SLATs, and all those things went out of... We didn't need them anymore when the exemption was 11.5. That's probably all coming back.

Doug:

I tend to think you're right. I think there's a couple of reasons for that. Moderation, obviously, said that the slim margins in Congress, so you've got to appeal, to some degree, to those middle-of-the-road congressmen and women on both sides of the aisle to get that support through the middle. And then, as you said, that there's still portions of the economy which are suffering mightily, and that's the concern that I have is we see, if anything, this greater bifurcation here between the haves and the have-nots who have recovered, doing well, who's not, and I'm not sure the tax policy is the best place to try and to fix all of those things.

Christopher:

Right.

Doug:

Christopher:

One of the other interesting thing that is in Biden's proposal which could have an impact, and maybe in a similar way, is the whole retirement savings and how it currently functions on a pre-tax basis for a 401(k)-type plan that the higher tax bracket you're in, the more you get a benefit out of the pre-tax contributions to your retirement plan because it's not taxed today, it's taxed down the road when you pull it out. And what they want to do with that is get rid of the pre-tax methodology, and instead, give you a credit on your tax return for retirement contributions that you make. And that credit would be, basically... The detail's still coming out, but I guess, worst case, it would be a flat percent that would apply to everybody, regardless of what your income level was. And so to level the playing field on who's going to be the benefit of that.

Doug:

Yeah, that would, of course, throw all of the retirement plans and all of that into the muck as well. We've seen, certainly, Roth-type of... That's been more prolific in recent years and many more companies have a provision to allow that after-tax contribution and all of that. So, gosh, I'd hate to be on the benefits planning side in dealing with that.

Christopher:

Right.

Doug:

Sorry for our folks, Paul, and the rest of the team, oh gosh. What about from an individual note? I've seen a lot of this fraud stuff already. We're early on in tax season. What are you noticing there? Is that due to all this COVID and the extra benefits and things that are being thrown out there? What's going on?

Christopher:

Doug:

Scary stuff, with all the cybercrime out there, and right on somewhere, and all of that.

Christopher:

You can't let your guard down for a minute. And we see it within our own firm in terms of the emails you get, and particularly this time of the year, where we're expecting people to send us stuff, and the natural inclination is to click that attachment because you think it's some kind of source document you've been waiting on, and it could be something worse.

Doug:

Yeah. It's not, that's for sure. So speaking of bad stuff, we're into, obviously, getting into the throws of deadlines and all that, and you got any good horror stories for us, or recommendations, if you don't want to go to the dark side, recommendations as we get into the meat of the season here?

Christopher:

Well, it's just another year of the Accountants' Full Employment Act. The changes that are out there and the guidance across the broad spectrum are the things that you've talked about, touched on PPP and retention credits, and changes to forms. Be patient with us as your CPA. We need to get it right. We want to get it right, but in order to do that, it's probably going to take longer, perhaps, than it has in the past. The good news is that we didn't need an extension of the busy season. Nobody wants that. But I guess the bad news is we're halfway through it, and 04/15 is around the corner, and there's still much to be done.

As a couple of thoughts that maybe tax and maybe not necessarily tax-related, but just so listeners may be aware, in case they didn't see it. There was some leeway passed, as a part of that CAA, with regard to flex spending accounts, both the medical and the dependent care, because as you may know, they are "Use it or lose it." So you've made pre-tax contributions through your employer over the course of a year. So you've built up a savings account that you can then use, in the case of the medical, on qualifying medical expenditures. And if you don't use it within a certain period of time, then you lose the use of that money. And while you didn't pay tax on it, you also don't have it. And it came out of your salary, so definitely, you don't want to lose it.

Doug:

The key is to communicate with us, keep us in the loop. I mean, you and I both know the biggest problems we tend to run into are folks that... it's more the fire-aim-ready kind of, "Hey, I did this. How can we mitigate, or how do we plan?" We already affected the transaction, right?

Christopher:

Doug:

Yeah, absolutely. And you and I are both involved in a number of M&A transactions with clients. That seems to be just as prevalent as ever, too. So again, make sure you're getting us involved on the front end with that stuff.

Christopher:

Yeah, I've not seen any real let-up in M&A, so...

Doug:

Yeah, good sign. Well, thanks as always, Chris. Appreciate your wisdom and-

Christopher:

A pleasure to join you again, yep.

Doug:

We'll look forward to the round of golf and the bourbon.

Christopher:

Looks like a plan.

Doug:

Hopefully soon.

Christopher:

Yep.

Doug:

Well, thank you. And if you want more business tips and insight, or hear previous episodes of unsuitable, visit our podcast page at www.reacpa.com/podcast, and while you're there, sign up for exclusive content and show notes. Thanks for listening to this week's show. Be sure to subscribe to unsuitable on Apple Podcasts, Google Podcasts, or wherever you're listening to us right now, including YouTube. I'm Doug Houser. Join us next week for another unsuitable interview with an industry professional.

Disclaimer:

The views expressed on unsuitable on Rea Radio are our own and do not necessarily reflect the views of Rea & Associates. The podcast is for informational and educational purposes only and is not intended to replace the professional advice you would receive elsewhere. Consult with a trusted advisor about your unique situation so they can expertly guide you to the best solution for your specific circumstance.