Cincinnati Tax Guy

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Today (November 21, 2013) Senator Baucus released the 3rd in some staff discussions on taxes reform. This dialogue targets depreciation (also known as “cost recovery”) and taxes accounting methods. Not the most thrilling topics, thursday night Night time Football reading through to them and I’ll not miss. Let’s review them quickly. America today is utilizing a bloated taxes code that was built for businesses close to 30 years back.

The code is completely outdated and acting as a brake on financial development. I cannot disagree with him, but I am not optimistic about politicians – today, tomorrow – keeping their hands off any tax reform. Remember that Chief Justice Roberts deemed ObamaCare to be a “tax” – even although White House itself did not present short or argue it to be a tax.

With that degree of verbal schizophrenia, I’d bet that any “reform” would last about as long as when the first politician must get reelected. Decrease the amount of depreciation classes to four: three for brief- to mid-term property and one for longer-lived resources. There would be only 1 permitted depreciation method.

By longer-lived, think real estate, which Baucus proposes to depreciate over 43 years. COMMENT: There will go the never-worked-in-the-real-world-crowd again. I have thirty years in this continuing business, and I’ve never seen a proposed real estate investment analyzed more than a 43-12 months recovery. Slow depreciation from double-declining balance to declining balance. Real estate would stay straight-line. Allow extended general asset accounting. Repeal depreciation recapture for pooled possessions. Treat all gain from disposition of pooled possessions as normal income. 45,000. That amount in turn is depreciated over 5 years. I am not amazed excessively. There is still a lot of abuse – truly – in this area.

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Repeal expensing for research and development expenditures. The default treatment is to capitalize and depreciate over 5 years. COMMENT: This cannot make business sense. You want to describe this proposal change to Apple, Samsung, Pfizer, or any true amount of research-intensive companies? Disallow the deduction for advertising. In its place, you’ll deduct one-half immediately and then amortize the total amount over 5 years.

COMMENT: This makes no sense to an accountant. I associate amortization and depreciation with assets that have use or value over more than one year. Advertising doesn’t make that cut. Does anyone discuss the commercials from last year’s Super Bowl, for example? Treat “qualified removal expenditures” the same manner as research and development.