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Maximize tax benefits with year-end tax planning for accountants

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As we approach the end of 2024, year-end tax planning is at the forefront of every accountant’s agenda. With changing tax regulations and incentives, staying informed about the latest updates is crucial for optimizing client outcomes. Source Advisors explains some of the most impactful areas accountants should focus on this season to minimize tax deductions.

Bonus depreciation: phasing down, but still relevant

Bonus depreciation is an additional first-year tax deduction that affords many taxpayers significant cash tax savings early on and supports future tax planning strategies. Under the Tax Cuts and Jobs Act, the bonus is applicable to both acquired and newly constructed assets placed into service after Sept. 28, 2017. While the rate of bonus depreciation continues to phase down, it remains a critical tool for accelerating deductions on qualified property. Unless there is some legislative change, the scheduled phase-down period, presents both opportunities and challenges for 2024:

  • 2024: 60%
  • 2025: 40%
  • 2026:  20%
  • Fully eliminated by 2027.

Accountants may want to ensure their clients maximize current-year benefits and advise them on the timing of asset acquisitions and in-service dates, particularly for significant purchases, in order to take advantage of the higher bonus depreciation rates before they decline further.  

Qualified property includes assets with a MACRS recovery period of 20 years or less, such as decorative lighting and Qualified Improvement Property. Notably, QIP applies to nonstructural, interior improvements made after the building is first placed in service by the taxpayer and remains a key focus area.

Tangible property regulations: the repairs vs. capitalization debate

The tangible property regulations provide guidance for costs incurred to acquire, produce or improve tangible property. Issued in 2013, these regulations are critical to a client’s capitalization, depreciation and expensing procedures for fixed assets.   Proper classification of expenditures under TPRs can result in significant tax savings. Accountants should conduct a detailed annual review of their clients’ capitalization policies,  fixed-asset accounts and current-year expenditures to identify items eligible for expense treatment or the case of assets permanently removed from service,  an evaluation and correct calculation of the partial asset disposition (which must be taken in the tax year of disposition). Some of the best practices include:

  • Repairs: Expenses meeting the “routine maintenance” or “de minimis safe harbor” criteria can be expensed immediately, reducing taxable income.
  • Improvements: Many capitalized items may be eligible for expensing and/bonus depreciation.
  • Dispositions: Current year partial and/or entire asset dispositions are being accounted for. It is important that the client addresses this write-off opportunity in the current year as dispositions cannot be retroactively corrected.

Accountants should revisit prior-year classifications for possible adjustments, especially under the 5-year automatic change rule for Form 3115.

Cost segregation: accelerate depreciation with detailed analysis

Cost segregation studies continue to be a cornerstone of tax strategy for businesses with substantial real estate investments. These studies reclassify components of a building into shorter-lived assets, allowing for accelerated depreciation. 

Many decorative interior finishes and special purpose electrical and mechanical assets may be depreciated over five and seven years with land improvements, or 15 years instead of 27.5 or 39 years for buildings.

Today, cost segregation studies are becoming more complex but increasingly rewarding, particularly for projects involving Qualified Improvement Property. For clients who own nonresidential properties, significant deductions can be recognized when they are performing interior improvements and renovations. Based on thousands of studies, a large portion of our client’s building improvement capex qualifies as QIP.

A thorough review of capitalized assets can identify opportunities for reclassification and ensure compliance with updated regulations. Close consideration should be given to the scope of a study to address the detail not only needed to support assets eligible for accelerated depreciation but also to serve as a reference document to support TPR activities during the ownership period. 

Energy tax incentives: leverage enhanced deductions and credits

The Inflation Reduction Act significantly enhances energy tax incentives, including Sections 179D and 45L, making them a focal point for businesses investing in energy-efficient properties. Energy-efficient buildings and homes offer lucrative opportunities for tax savings:

Accountants should ensure compliance with certification standards and explore these incentives to offset construction and renovation costs.

SALT updates and trends: stay ahead of state-level changes

State and local tax developments continue to reshape compliance requirements:

  • Increasing movement toward flat tax rates;
  • Adjustments to net operating loss limitations, including caps in Illinois and California;
  • Expansion of digital economy taxation; and,
  • Enhanced sin taxes, such as Maryland’s increased tobacco tax and California’s firearms excise tax.

As states adapt to economic pressures, accountants should monitor legislative changes that may impact client liabilities or planning strategies.

Year-end action items for accountants

To prepare clients for the year ahead and ensure they are well-positioned, accountants should consider the following steps:

  1. Review capitalization policies: Update client policies to align with current regulations and optimize expense classifications.
  2. Assess past and current capitalized items: Identify opportunities to reclassify assets or apply safe harbor elections.
  3. Conduct fixed asset reviews: Look for partial asset disposition opportunities, especially for underutilized or retired assets.
  4. Leverage Form 3115: File for permissible accounting method changes where beneficial.
  5. Plan for 2025 capex: Discuss the implications of future capital expenditures, particularly as bonus depreciation phases out.

The 2024 tax environment is rich with opportunities but demands diligence from accountants to navigate effectively. As always, proactive planning and thorough documentation remain essential for compliance and maximizing benefits. For specialized assistance, consider consulting experts in cost segregation, energy tax credits and TPR applications to enhance the overall strategy.

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Accounting

IAASB tweaks standards on working with outside experts

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The International Auditing and Assurance Standards Board is proposing to tailor some of its standards to align with recent additions to the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants when it comes to using the work of an external expert.

The proposed narrow-scope amendments involve minor changes to several IAASB standards:

  • ISA 620, Using the Work of an Auditor’s Expert;
  • ISRE 2400 (Revised), Engagements to Review Historical Financial Statements;
  • ISAE 3000 (Revised), Assurance Engagements Other than Audits or Reviews of Historical Financial Information;
  • ISRS 4400 (Revised), Agreed-upon Procedures Engagements.

The IAASB is asking for comments via a digital response template that can be found on the IAASB website by July 24, 2025.

In December 2023, the IESBA approved an exposure draft for proposed revisions to the IESBA’s Code of Ethics related to using the work of an external expert. The proposals included three new sections to the Code of Ethics, including provisions for professional accountants in public practice; professional accountants in business and sustainability assurance practitioners. The IESBA approved the provisions on using the work of an external expert at its December 2024 meeting, establishing an ethical framework to guide accountants and sustainability assurance practitioners in evaluating whether an external expert has the necessary competence, capabilities and objectivity to use their work, as well as provisions on applying the Ethics Code’s conceptual framework when using the work of an outside expert.  

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Accounting

Tariffs will hit low-income Americans harder than richest, report says

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President Donald Trump’s tariffs would effectively cause a tax increase for low-income families that is more than three times higher than what wealthier Americans would pay, according to an analysis from the Institute on Taxation and Economic Policy.

The report from the progressive think tank outlined the outcomes for Americans of all backgrounds if the tariffs currently in effect remain in place next year. Those making $28,600 or less would have to spend 6.2% more of their income due to higher prices, while the richest Americans with income of at least $914,900 are expected to spend 1.7% more. Middle-income families making between $55,100 and $94,100 would pay 5% more of their earnings. 

Trump has imposed the steepest U.S. duties in more than a century, including a 145% tariff on many products from China, a 25% rate on most imports from Canada and Mexico, duties on some sectors such as steel and aluminum and a baseline 10% tariff on the rest of the country’s trading partners. He suspended higher, customized tariffs on most countries for 90 days.

Economists have warned that costs from tariff increases would ultimately be passed on to U.S. consumers. And while prices will rise for everyone, lower-income families are expected to lose a larger portion of their budgets because they tend to spend more of their earnings on goods, including food and other necessities, compared to wealthier individuals.

Food prices could rise by 2.6% in the short run due to tariffs, according to an estimate from the Yale Budget Lab. Among all goods impacted, consumers are expected to face the steepest price hikes for clothing at 64%, the report showed. 

The Yale Budget Lab projected that the tariffs would result in a loss of $4,700 a year on average for American households.

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Accounting

At Schellman, AI reshapes a firm’s staffing needs

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Artificial intelligence is just getting started in the accounting world, but it is already helping firms like technology specialist Schellman do more things with fewer people, allowing the firm to scale back hiring and reduce headcount in certain areas through natural attrition. 

Schellman CEO Avani Desai said there have definitely been some shifts in headcount at the Top 100 Firm, though she stressed it was nothing dramatic, as it mostly reflects natural attrition combined with being more selective with hiring. She said the firm has already made an internal decision to not reduce headcount in force, as that just indicates they didn’t hire properly the first time. 

“It hasn’t been about reducing roles but evolving how we do work, so there wasn’t one specific date where we ‘started’ the reduction. It’s been more case by case. We’ve held back on refilling certain roles when we saw opportunities to streamline, especially with the use of new technologies like AI,” she said. 

One area where the firm has found such opportunities has been in the testing of certain cybersecurity controls, particularly within the SOC framework. The firm examined all the controls it tests on the service side and asked which ones require human judgment or deep expertise. The answer was a lot of them. But for the ones that don’t, AI algorithms have been able to significantly lighten the load. 

“[If] we don’t refill a role, it’s because the need actually has changed, or the process has improved so significantly [that] the workload is lighter or shared across the smarter system. So that’s what’s happening,” said Desai. 

Outside of client services like SOC control testing and reporting, the firm has found efficiencies in administrative functions as well as certain internal operational processes. On the latter point, Desai noted that Schellman’s engineers, including the chief information officer, have been using AI to help develop code, which means they’re not relying as much on outside expertise on the internal service delivery side of things. There are still people in the development process, but their roles are changing: They’re writing less code, and doing more reviewing of code before it gets pushed into production, saving time and creating efficiencies. 

“The best way for me to say this is, to us, this has been intentional. We paused hiring in a few areas where we saw overlaps, where technology was really working,” said Desai.

However, even in an age awash with AI, Schellman acknowledges there are certain jobs that need a human, at least for now. For example, the firm does assessments for the FedRAMP program, which is needed for cloud service providers to contract with certain government agencies. These assessments, even in the most stable of times, can be long and complex engagements, to say nothing of the less predictable nature of the current government. As such, it does not make as much sense to reduce human staff in this area. 

“The way it is right now for us to do FedRAMP engagements, it’s a very manual process. There’s a lot of back and forth between us and a third party, the government, and we don’t see a lot of overall application or technology help… We’re in the federal space and you can imagine, [with] what’s going on right now, there’s a big changing market condition for clients and their pricing pressure,” said Desai. 

As Schellman reduces staff levels in some places, it is increasing them in others. Desai said the firm is actively hiring in certain areas. In particular, it’s adding staff in technical cybersecurity (e.g., penetration testers), the aforementioned FedRAMP engagements, AI assessment (in line with recently becoming an ISO 42001 certification body) and in some client-facing roles like marketing and sales. 

“So, to me, this isn’t about doing more with less … It’s about doing more of the right things with the right people,” said Desai. 

While these moves have resulted in savings, she said that was never really the point, so whatever the firm has saved from staffing efficiencies it has reinvested in its tech stack to build its service line further. When asked for an example, she said the firm would like to focus more on penetration testing by building a SaaS tool for it. While Schellman has a proof of concept developed, she noted it would take a lot of money and time to deploy a full solution — both of which the firm now has more of because of its efficiency moves. 

“What is the ‘why’ behind these decisions? The ‘why’ for us isn’t what I think you traditionally see, which is ‘We need to get profitability high. We need to have less people do more things.’ That’s not what it is like,” said Desai. “I want to be able to focus on quality. And the only way I think I can focus on quality is if my people are not focusing on things that don’t matter … I feel like I’m in a much better place because the smart people that I’ve hired are working on the riskiest and most complicated things.”

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