The year-end tax planning process starts now to position one’s business for a brighter 2021, two words that have never sounded so sweet. “To me, year-end planning and fourth quarter planning are generally the same,” said Stefanie “Stef” M. Wientjes, CPA and manager with O’Donnell, Ficenec, Wills & Ferdig. “Most small to mid-sized businesses don’t have the time to do Q4 tax planning in September or October, and then turn around and do it all over again in December. And often waiting until December is a little late in the game to make meaningful changes, resulting in tax savings.”
Planning usually starts with a conversation: What is the client experiencing? What do they expect to experience in the current tax year?
Even before we have a conversation, I like to look at the prior year tax returns and the current year-to-date income statement and balance sheet of the small business,” said Wientjes, who specializes in tax planning and preparation of SMB income tax returns and income tax reporting for related shareholders. “I look for anomalies between the two years that may trigger the right questions.” Wientjes is looking for a trial balance, income statement and balance sheet.
“I want clients to tell me what has happened this year that is different than last year,” she said. “I want to know what they anticipate the rest of the year to look like.” Quite often, the tax planning must be done on the business: “So, we can determine how it will impact the individual.”
“On the individual side, I will need the most recent pay stubs. I will need information on their investment accounts. Just like the business, I will want to know what has changed since the prior year.”
In an ideal world, Wientjes remarked, planning would be done before entering into any major transactions. “All too often, we are asked for the tax implications of a transactions after the deal is done,” she said. “It is too late to do any planning or to structure the transactions in the most tax-advantageous manner.” That’s not to say businesses wither away without tax planning. “They just pay the tax they owe on the income they earn,” Wientjes said. But those businesses that do plan are positioned to make better decisions.
“They can structure major transactions in a tax-advantaged manner,” Wientjes said. “They can ensure they have enough liquid cash to pay taxes due.”
When asked about such planning in action, Wientjes referred to how the Tax Cut and Jobs Act (TCJA), passed into law in late 2017, increased bonus depreciation from 50% to 100%.
The Internal Revenue Service also provides a list of what changed in other categories, including deductions and fringe benefits, at its government website. “That sounds like a great deal,” Wientjes said of the aforementioned bonus depreciation-oriented spike. “The small business purchases an asset (that meets certain requirements) and they get to deduct 100% of the cost of that asset in the current year.”
For instance, say, it’s close to year-end. A small business is considering purchasing a large piece of equipment. They plan on taking bonus depreciation. But, the owner questions, what if the bonus depreciation puts me in a loss position? What if I lose the ability to take the qualified business income (QBI) deduction of 20% and fail to fully utilize the lower individual tax brackets on my personal return? “Compound that with the next year,” Wientjes said. “There is no depreciation on the asset and now the income is taxed at higher rates, because you have fewer deductions to offset income.” If, Wientjes said, the owner of the small business elected out of bonus depreciation they might be able to reduce current year income using Section 179 and regular depreciation to a level at which the lower tax brackets and the 20% QBI deduction is maximized.
“The overriding theme is that tax planning starts with a conversation,” Wientjes stressed, as the No. 1 takeaway. “Talk to your accountant. Keep them informed.”
Accounting was not originally in the New Orleans, LA-area native’s plans. “It was simply a good road to begin my career,” said Wientjes, who formerly worked in both public accounting and the oil and gas industry. “While moving along that road, I realized I loved what I was doing and decided to pursue my master’s degree in Taxation.” Wientjes earned that degree from the University of New Orleans. “I don’t know that I can explain it,” she said. “Taxation was interesting, it was challenging, and, in some ways, it was fun.” Wientjes joined OFWF shortly after relocated to an acreage between Omaha and Lincoln with her husband in 2008. “I am a graduate of Spring Hill College, a small Jesuit college in Mobile, Alabama,” she explained. “During the interview process with OFWF, I quickly realized several of the partners of the firm were Creighton graduates who would have had an education similar to mine. After meeting several of the partners, I accepted the position and quickly realized I had found my work ‘home.’” Though Wientjes’ background may be in tax, she enjoys the opportunity to do “a little bit of everything.” “I love my clients and I truly enjoy helping them with their accounting and tax needs,” she said.
O’Donnell, Ficenec, Wills & Ferdig has been providing tax and assurance services, business valuation, litigation support, QuickBooks and information services, and accounting and business advisory solutions to Omaha-area organizations for almost 70 years.