Businessweek Archives

Now The Only Thing Certain Is Death


News: Analysis & Commentary: THE BUDGET

NOW THE ONLY THING CERTAIN IS DEATH

Figuring taxes will be a crapshoot until the stalemate is over

As if paying Uncle Sam weren't enough of a headache. This tax season, things may be even uglier than usual. The reason? Without a federal budget deal that would have finalized tax rules for 1995, some taxpayers still don't have a rule book to follow in their filings. That could lead to widespread confusion for taxpayers, problems for tax software providers, and a more-hectic-than-usual season for the nation's tax preparers. "If there are a lot of changes [in the final budget deal], we'll have a lot of hiccups," says Marion Mason, a certified public accountant in Miami.

One reason for the uncertainty: A slew of tax breaks for both corporations and individuals expired in 1995 and have yet to be renewed. While Congress is expected to restore most of these breaks in its final budget agreement, including a tax exemption for tuition assistance and a research tax credit for corporations, the delay could cause major accounting headaches. Meanwhile, early filers could be forced to hold off until a deal is reached--or risk having to amend their filings.

IN THE DARK. For individuals, the answers to unresolved questions could make a big difference in their tax bills. The Republican budget plan calls for a new, $500-per-dependent tax credit for children and a cut in the capital-gains tax to 19.8% from the current 28%. As now written, both provisions are retroactive to taxpayers' 1995 returns. The trouble is, the Internal Revenue Service tax forms now being mailed out across the U.S. don't include these proposed alterations.

As the debate drags on, it becomes less likely such changes will be made retroactive, most tax experts say. Still, the possibility exists: Capital-gains tax forms now include a warning from the IRS that Congress could make changes to the 1995 rules. And if the stalemate lingers into February, taxpayers still hoping for a cut in the 1995 capital-gains rate will be left hanging. Judy Keisling, a vice-president with H&R Block Inc., is advising clients who want to do their taxes early to use the current capital-gains rate. If the stalemate lasts much longer, she warns, the uncertainty could even begin to disrupt personal tax planning for 1996.

The nation's corporate filers are as much in the dark about the final look of their tax bill for future years. President Clinton, for instance, has proposed taxing 50% of the dividends corporations earn on stock investments, instead of the current 30%. A change for 1996 would substantially impact the investment returns companies can expect. Although it is unclear whether that provision and others like it will actually be altered, Washington conventional wisdom says that some tax breaks will ultimately be eliminated or reduced. Corporate clients "are very concerned about this," says Deloitte & Touche tax principal Clint Stretch.

PREPARING FOR THE WORST. Equally unnerving for business is the fate of such popular provisions as the exclusion of employer tuition assistance from an employee's taxable income. Authority for the provision expired on Dec. 31, 1994. While the exclusion is expected to be extended, at least for now, the provision is technically no longer in effect.

Accountants are bracing for major headaches as a result. The W2 forms that many employers are now generating reflect higher taxable income for employees who received tuition assistance during 1995. If the provisions are restored, employers will have to reconfigure those forms. "This could cause people to have to file amended returns later," says Rachelle B. Bernstein, a partner with Arthur Andersen & Co.

Most tax software companies are betting that Washington won't make any major changes to the 1995 regulations. But they're preparing for the worst. Intuit Inc., which will begin shipping the final version of its TurboTax software in late January, will make changes available to users through its World Wide Web page or by mailing them an updated program. TaxCut, a program from Block Financial Software, a unit of H&R Block, is also prepared to mail maintenance disks and will post fixes to user forums available on online services. Inconvenient? Yes. Expensive, too. But whoever expected balancing the budget to be any fun?

A slew of tax breaks for companies and individuals expired in 1995. Some may not be renewed. Even those that are may be revised. Accountants are bracing for a major migraineBy Amy Barrett, with Dean Foust, in Washington, and bureau reports


The Good Business Issue
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus