Small Business Owners Get Relief After IRS Change

Small Business Owners Get Relief After IRS Change

Polk & Associates CPABy Susan Tompor, Detroit Free Press Personal Finance Columnist
Article originally published at12:11 a.m. EST February 22, 2015

Owosso-based accountant James Demis Jr. has one of those tax-time stories from the land of everlasting fire that we just had to share it.

After Demis and his colleagues at other Andrews Hooper Pavlik offices in Michigan filled out about 500 tax forms for small-business owners, farmers and others, the rules suddenly changed.

Form 3115, Application for Change in Accounting Method, was no longer required for many small-business owners. Most of those 500 forms would no longer be needed to be filed by March 15 or April 15.

On Feb. 13, yes Friday the 13th, the Internal Revenue Service essentially announced in more technical language: Just forget about it.

“Come on, it’s Feb. 13,” Demis said. “It’s been a tax season from hell.”

The late change may have been a pain for accountants, but it was something they and many small businesses sought.

Form 3115 is a form that only a few outside the accounting industry know exists. But accountants and small-business owners had plenty to complain about when it came to all that extra paperwork, and they actually had lobbied for the change.

Melissa Labant, director of tax advocacy for the AICPA, said the repair regs, as they are known, boil down simply to figuring out when a business can expense something immediately, like a repair, or when a business would have to spread that expense out over a number of years.

The problem, as CPAs saw it, was that the requirement for Form 3115 was too broad and applied to too many small one-person operations and even individuals who own a few rental properties.

Carol Wright, a principal at the Rehmann office in Troy, said some small business owners, maybe in manufacturing or real estate, could still benefit from filing the form and could choose to do so. But other businesses that wouldn’t benefit, could opt out.

Many in the accounting industry are now thankful that the form will not apply to nearly as many small businesses.

“It was cumbersome. It has some heavy-duty concepts. Even if you tried to explain it to clients, their eyes would just glaze over,” said George W. Smith IV, a certified public accountant and partner at George W. Smith in Southfield.

“You’d try to explain this to someone and there was a big ‘You’ve got to be kidding me’ most of the time.”

The reporting applies to taxpayers with depreciating assets or those who buy, sell, improve, or dispose of assets.

Terry Dykhouse, director of Doeren Mayhew in Troy, said small-business owners need to be aware of the regulations but many can now make any necessary changes to their accounting methods in-house and not have to file the form.

The issue involved tax years beginning on or after Jan. 1, 2014, the effective date of the repair regulations.

The IRS said the new simplified procedure is generally available to small businesses, including sole proprietors, with assets totaling less than $10 million or average annual gross receipts totaling $10 million or less.

While thankful for the guidance, CPAs agreed the official word just did not arrive soon enough for many. Too many hours were spent as CPAs prepared to meet a March 15 filing deadline for corporations or an April 15 deadline for others, such as those who run a business and file a Schedule C.

Smith said it’s unfortunate that the IRS made the changes late in the game. Hours and hours were spent trying to explain the complex rules to small-business owners who no longer need to file the form.

“This has been handled as ineptly as possible,” Smith said.

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