Thoughts upon coming to the end of another tax season
I just finished my 45th tax season. Being tired and grouchy, it is hard to come up with uplifting subjects. Next month, I may explain my excitement over my farm’s giant pile of cow manure. For now, this is my mindset.
People’s perception of what is right and wrong has changed. This was the first year that our firm put up a notice at the front desk that clients had to pay for their tax returns when they picked them up. The sign was in response to our experiences last year with a few new people.
If a kid steals a candy bar from a grocery store, that’s a crime. But, somehow, not paying one’s bills has lost its stigma. A man told me last week not to take it personally because he had not paid our firm for last year’s tax work. He wasn’t going to pay this year’s accountant either. These people make debtors prison from the colonial period seem like just punishment.
There are a lot of people out there getting a lot of stuff for free, and they feel perfectly comfortable with that. After all, there isn’t a policeman knocking at their door — that would only happen if you stole a 50-cent candy bar.
Technology has made tax preparation more efficient on one hand and more difficult on another. Standardization on programs such as QuickBooks can make accounting work much more efficient.
Then there are spread sheets. When a doctor opens up a patient for surgery, he can be reasonably sure of what he will find. When accountants open a new file, they can never be sure what they will be up against: It may be a well-entered QuickBooks report or it may be an indecipherable spreadsheet.
Frater Luca Bartolomes Pacioli, a friend of Leonardo DaVinci’s, standardized accounting concepts during the Renaissance in Italy. The double entry accounting system, if used properly, gives some basic assurance of accuracy. Some people will follow centuries-old methodologies that work well. Other people have their own idea as to how financial information should be organized. Given a well-laid-out organizer or an accounting program such as QuickBooks, they will resort instead to a pad of legal paper or their own Excel creation.
What clients of accounting firms do not understand is that in doing hundreds of business tax returns, it is incredibly time-consuming to have to learn a new accounting lay-out unique to each client. The additional time it takes to learn each person’s particular methodology shows up in less time to service the needs of that client.
Most CPA firms provide tax organizers at the beginning of the year. A lot of people don’t use them, which is frustrating for the tax preparer. Tax returns have a flow to them that the organizer follows. People not using organizers tend to bounce all over the place in their listings, causing the accountant to have to move back and forth between sections of the return in order to enter the information on the right page and line.
Henry Ford initiated the use of the production line in order to produce large volumes of vehicles efficiently. Imagine the production line with random parts arriving at random spots at random times. Efficiency is found in standardization. The same is true in tax preparation.
Our tax system has simply become too complicated. Changes were made in the tax law in late December last year. One particular area of interest was bonus depreciation, which went from 50 to 100 percent. Assets purchased before Sept. 8, 2010, get 50 percent bonus depreciation. Assets purchased after Sept. 8, 2010, get 100 percent bonus depreciation.
When I started in public accounting, once you knew tax law, you were set for a while. Today, the tax law is mercurial. Changes are sudden and unpredictable. This makes tax preparation more difficult and, equally important, it makes tax planning nearly impossible.
The current tax system is set to expire at the end of 2012. It is difficult for individual taxation, daunting for business taxes and virtually impossible for estate taxes. To be effective, the tax system must be understandable, stable and fair. Our tax system is nearly incomprehensible, subject to change at any moment and grossly unfair.
The National Small Business Association published a white paper several years ago about the basic unfairness of the income tax system as it applies to small business. There has been some progress made with the rules and regulations laid upon small business to attain the same benefits as the rest of the population, but it is still an unbalanced system. When you hear politicians talking about how small business is the engine that drives the economy, they should be asked the reason they choose to punish those valuable enterprises so severely in the tax code.
One of the things that I find interesting is the protesters in Lansing who complain about their benefits and express with great emotion their right to those benefits. What I don't see are protests from the people who pay for those benefits. I suppose it is because the people paying for the benefits don't have time to travel to the state capital and stand around waiting for the TV cameras.
It seems that we finally have, at least for now, a majority of politicians who are aware that the people paying the benefits also need consideration. Maybe we now have people in Lansing who understand that you feed the golden goose, rather than starve it. Here's hoping.
Paul A. Hense is president of Paul Hense CPA PC, a local accounting firm. He also is past chairman of the Small Business Association of Michigan.