Most of us are aware of the proposed tax reform that intends to make a complete overhaul of the tax system. The proposed tax reform aims to simplify taxation but it would not lessen the workload of tax preparers. As a matter of fact, the changes in the tax law could possibly increase the demand for CPA firms because there will be an expected rise in the planning opportunities for CPAs.
On previous tax reforms, most experts were concerned that the simplification of taxes would have a negative effect on accounting firms but it was proven otherwise, that the changes in the tax law had little or no effect on tax preparers. Tax reforms have forced people to change their practices in tax preparations creating loads of planning opportunities for CPA firms. Tax return preparations usually involve accounting which is why CPAs are not significantly affected by the change in the tax laws.
Though the goal of the tax reform is to simplify taxes, experts claimed that complexity in the filing of tax is inevitable. For instance, in the proposed tax reform, eliminating the estate tax will result in complexities in the filing of capital gains tax. This means that simplification may still result to complexities that would require thorough planning. For this reason, CPA firms are gearing up for an increase in planning opportunities that come with all these tax law changes.
Accounting firms are more likely to benefit from other planning opportunities created by the notable difference between the business tax rate and the individual tax rate in the proposed tax reform. According to experts, applying a lower business tax rate to pass-through entities while imposing higher individual tax rate on compensation may lead business owners to find a way of converting their compensation income to business income, which will have a lower tax rate. This can create complexity, especially with large business returns. If the 15% rate for businesses is imposed, there will be a demand for better compensation studies from CPAs.
Although the tax reform would not have a significant negative effect on CPAs, it may take a toll on low-end tax preparations. If more people would not be required to file or if filing will be simple enough to be done on their own, the need for an office based tax preparer may lessen. Currently, there are several available software being used online that help people file their own returns. However, more complex cases and higher tax returns still require help in tax preparation so there won’t be a drastic loss on low-end tax preparation.
Any change in the tax law is always beneficial for accounting firms since it opens lots of opportunities for them. There will always be a confusion in the filing of tax returns after a tax reform even with simplifications. This shows how important CPA firms are in tax preparations and in filing tax returns. Once the proposed tax reform is approved, it will be advisable for any taxpayer especially business owners with large tax returns to consult with the top CPA firms and start planning the best way to deal with the changes in the tax laws.