For business owners in Huntsville and beyond, tax season is likely high on their list of priorities right now as the end of year quickly approaches. The Huntsville Business Journal recently met with Huntsville CPA Jared Sharp of Warren Averett to discuss recent developments and pro tips for businesses as they enter the year-end planning period for the 2022 tax season.

According to Sharp, now is the time for businesses to focus on year-end planning in order to examine what they can do now for tax planning purposes that can help them save money when they file returns in 2023.

“If there’s anything you can do now, let’s go ahead and start doing it because after year end, it’s typically too late to save for taxes in 2022.”

Sharp stressed the need for continual communication between businesses and their CPAs as key to making sure they’re doing everything they can to save. “Having that idea of when are you going to file, when are you going to be ready to file, how quickly can you have the books closed, if you’re getting a financial statement audit done–the timing of that is important because you want to file your taxes after that’s completed.”

“Hopefully most people already have their CPA identified, but if not you should probably be talking to them now–it’s too late once you get into January and February because we’ve already laid out our schedule for that time frame. If you don’t have a CPA that you’re working with that needs to be number 1. Identify them now.”

Despite the negative perception of filing for an extension on taxes, Sharp explained that it can be beneficial for a lot of companies due to the short time frame between the end of the year and filing deadlines.

“In January, you’ve got to close your books and file a tax return by March for a pass-through entity and by April for a C Corporation,” he said, explaining that the additional time can provide businesses with the opportunity to more thoroughly prepare. ”Your CPA has more time to look at everything too. But having those conversations now is probably good to get an idea of what you need to do.”

While there aren’t a lot of changes from the previous tax year to this, Sharp noted that there is one major change that should be getting more attention than it currently is because of its potential impact on companies doing research and development.

While this change in the tax code took place in 2018, it does not take effect until 2022. Sharp explained that because it was five years out at the time of its enactment under the Trump administration, not a lot of people paid attention to it.

“Every time they make a tax law change you’re decreasing taxes here, but you gotta raise them somewhere else to budget it out,” he said. “Basically in 2018 when all those tax laws and tax cuts came in under Trump, this was one lever they had to push up to say ‘in 2022 we’ll recoup some of these costs by taxing the R&D costs by allowing it to be a deduction over 5 years versus today.’”

Under this code, Sharp explained, R&D expenses such as wages, supply costs, and anything else that goes into R&D efforts by U.S. companies will have to be categorized and amortized for five years for tax purposes. For foreign-based companies, this period increases to 15 years.

“Before 2022, you actually could expense immediately any of those costs. So that’s a big change for a lot of companies that may have R&D efforts that are heavy. Think about your biotechs, your software developers, for anyone that’s heavy into R&D that can be a big change,” Sharp said.

This translates to higher income on paper due to initial expenses not being deducted. Sharp added that there is talk in Congress to reverse this change before the end of the year, “which I think will be a good thing if they do because if you’re having to capitalize all of your R&D activity versus expense them, you’re kind of disincentivizing that spin on R&D.”

The Biden administration’s Inflation Reduction Act will primarily impact large corporations with over $1 billion in income, but Sharp noted that the energy credits and green initiatives included within that package may have benefits for a broader range of people.

“Those are out there, and I’d advise anybody that’s looking at buying a car or any type of home improvement activity that there can be some credits,” he said.

Sharp’s first piece of advice for new business owners: “Hire a good attorney and hire a good CPA. That’d be step #1.” He admitted that while it can be hard to balance for startups concerned about cost, it’s important to “hire the best that you can afford.”

Building a relationship with a good CPA is an important step in building a healthy business: “We don’t want to see you just one time of year when it’s time to do taxes–we want to work with you throughout the year,” he said.

Communication is key, he explained, because it allows your CPA to think about how things apply to your business and to help create a game plan that will best benefit your company financially.

This is particularly important when it comes to preparing for tax returns. Early planning is critical, Sharp explained, because if steps are missed during the current calendar year it’s difficult to fix errors retroactively.

“But if you’re talking along the way, planning opportunities, having those regular conversations with your CPA to keep them updated, that’s probably the most beneficial thing you can do, and just keep them aware of what’s going on with your business.”

“Make sure you can find the best you can afford, make sure you’re talking to them and planning, have regular conversations and let them know what you’re doing–that’s going to be the best thing you can do because of everything they can help you think about.”

Another valuable piece of advice: find a CPA and, for that matter, an attorney, who has expertise in the particular industry you’re working in. “If you’re a BioTech person, a GovCon person, if that’s what your company is doing, you want to look for a CPA that has a background in that line of work because there’s a lot of industry-specific items that come with accounting and taxes,” he said.

Sharp noted that a general accountant that works with a wide variety of businesses may not realize that a BioTech or GovCon company, for instance, can do different things when it comes to taxes than other businesses.

“I would say look for somebody who has expertise and spends time working with similar type clients.”

According to Sharp, while Warren Averett may not be the lowest-cost service, it provides value-added benefits that can bring real benefits to its clients. “We take a holistic approach to our clients–what that means is we’re not looking at just the tax stuff. You can hire us just to do your taxes but we’re also going to be looking at what we can do to help your business overall–we have a lot of different services we offer, so we want to make sure we’re introducing you to the right people inside the organization that can help you with any need you may have,” he said.

“For us, it really is about the relationships. We want to be working with our clients throughout the year, not just once a year. Anything that we can do to make sure we’re helping your business thrive, that’s our goal.”

Sharp described tax returns as “the byproduct that comes out of the relationship.”

Ideally, he added, there will be no surprises. “Hopefully you already have an idea because we’ve been working together on what that tax bill’s going to look at come April, what [you’re] going to owe…we’ve already been working towards that so it’s not a surprise when we go to file the tax return.”