Uncertainty over taxes makes planning tricky

A lack of resolution around a host of federal tax issues is making it difficult for companies and accountants to do their year-end tax planning.

"The key word here for tax planners is uncertainty," said Greg Sevier, managing partner of Peterson, Peterson & Goss. "It certainly makes planning difficult."

Sevier and his peers said the uncertainty around those tax issues means they are having to delay their tax planning to later in the year.

But with less than four months left in 2010, it's making some clients nervous, in which case tax planners like Shawn Sullivan of Allen, Gibbs & Houlik are offering clients a plan A, B and C.

"It really comes down to: is it all going to change, is some of it going to change or is nothing going to change?" said Sullivan, a vice president at AGH. "I don't remember there being more uncertainty."

Moreover, the uncertainty about what exemptions will still be in place, and what the tax rates will be make it hard for companies to plan for expansions, new hires and new equipment.

"That makes us be more cautious about what we do," said Peter Salmeron, chairman of Complete Landscaping Systems.

Planning was made a little bit easier this week when the House passed the Small Business Jobs Act, which President Obama has said he will sign.

The tax cuts in the bill include breaks for small businesses that remodel their buildings or build new ones.

Much of the tax relief would go to larger businesses for write-offs of facilities and equipment such as computers, trucks and machinery.

The measure also would allow small-business owners to deduct the costs of health insurance for themselves and their families from self-employment taxes, but only for the 2010 tax year.

And businesses that pay the alternative minimum tax will be eligible to claim the research and development tax credit and other write-offs, such as a credit for hiring the disadvantaged.

That will help ease some of the tax uncertainty for some companies.

"I think any of the accelerated depreciation provisions are great benefits to small businesses," Sevier said.

Stopping investment?

But the small-business bill doesn't help with other federal tax issues such as changes to income tax brackets, capital gains taxes and estate taxes.

The current rates on those taxes are set to expire this year, but tax planners said legislation that would change them or keep them the same have yet to be acted upon by Congress.

One legislative proposal in Congress calls for 2011 tax brackets to remain the same as 2010. A different proposal calls for only the top two tax brackets to increase by as much as 3.6 percentage points in 2011.

Capital gains tax is another uncertainty. As it stands the capital gains rate is scheduled to jump by 5 percentage points to a 20 percent rate in 2011.

"Without a doubt it will impact how you close 2010," said Steve Webb, a tax partner at BKD.

Lori Davis, Wichita managing partner of Grant Thornton, said that without resolution of those issues, "it's hard to make an investment decision. It's hard to make a hiring decision because (companies) can't do a rate-of-return analysis."

"I think that's why the economy is not growing. People don't want to make investments because they don't know what is going to happen."

Added Tim Witsman, president of the Wichita Independent Business Association: "That just dead stops investment because you can't complete the equation."

Most tax planners said they do expect some sort of resolution before the year ends.

But Davis said she thinks that it won't happen until after the fall congressional elections, as does PPG's Sevier.

"We're just telling clients to wait, that some of this uncertainty will go away with the fall elections," she said. "I think later in the year we'll know more, at least with (tax) rates."

AGH's Sullivan said he's less optimistic about a resolution to the federal tax issues before year's end.

"These debates over taxes seem to drag on and on," Sullivan said. "It may be January or February before these (decisions) are made."