Increasing Fee Pressures
At one time or another, every Attorney, CPA, or business professional has received push-back from a client who is less than happy with the amount of fees charged for services. Professional service providers gain expertise as a result of years of training, experience, and ongoing education, all of which translates to passing on tremendous value for clients. Sometimes, however, communicating the value of services to a client can be a challenge. There is a saying, “If you think a good lawyer is expensive, wait until you see how much a bad one can cost you!”
Fee pressures have become increasingly intense, particularly as a growing portion of consumers have decided to utilize online companies that provide an array of commoditized, lower-cost professional services. However, clients that use these online services don’t know what they don’t know, and sometimes a conversation with a legal professional can uncover an issue that, left unchecked, could develop into a significant legal or financial problem. For example, during an in-person consultation, a client might casually mention a business practice that could expose him to huge legal or financial liability; or a client could refer to her new business location in a different state, where she has not properly registered or started paying the required taxes. Getting clients to come in for a consultation can often persuade them that the services of a professional are necessary. But many clients still insist on keeping their costs as low as possible.
Communication Is Key
What is a professional to do?
The most important thing you can do, of course, is to communicate in an upfront and transparent manner about your fee structure and the anticipated costs to your client. Whether you bill by the job or by the hour, utilize retainers, monthly fees, or some other billing method. Clients should have a clear idea of what to expect when they receive your bill. In addition, describe the value they will receive from paying your fees, such as personalized and attentive service.
There are steps you can take to keep your clients’ costs reasonable while still providing quality services. This can be accomplished, in part, by keeping your own expenses down.
Reducing Operating Expenses
Some firms have lowered their own overhead by decreasing their physical footprint in high-cost metropolitan areas, or leaving these areas altogether for nearby, less expensive, locations. Firms can also use space more efficiently. According to one source, 26% of attorneys have office space exceeding 1,000 square feet per attorney (that’s larger than many apartments!). Reducing administrative costs by re-evaluating staff needs and/or outsourcing tasks when practical and automating procedures such as time-tracking and invoicing may provide additional savings. Some other cost-cutting measures could include renegotiating lease terms and shopping around for savings on travel, insurance, technology, and even office supplies.
Clear and transparent communication with your clients about fees and taking measures to regularly examine how your operating costs can be reduced may still not make your client happy to receive your bill, but it should provide a greater opportunity to meet a client’s expectations.
The implementation of the Tax Cuts and Jobs Act in late 2017 has significantly impacted the way companies depreciate their assets. If you own real estate or a business, or if you operate in the real estate or construction industries specifically, you need to learn more about the recent, potentially major changes to the depreciation and expensing rules for business assets.
Section 179
Section 179 of the IRS tax code allows businesses to deduct the purchase price of qualifying equipment and/or software purchased or financed during the tax year. For tax years beginning after December 31, 2017, the allowable IRC Section 179 deduction has almost doubled from $510,000 to $1 million. The maximum asset spending phaseout has also increased from $2.03 million to $2.5 million.
Under the former tax law, qualified improvement property was not eligible for Section 179. However, under the TCJA all leasehold improvements, provided they are made to the interior portion of nonresidential rental property after the building has been placed in service, will be eligible for immediate Section 179 expensing. Any improvements to a building’s interior qualify if they are not attributable to the enlargement of the building, any elevator or escalator, or the internal structural framework of the building. Before the TCJA passed, certain types of building improvements did not normally meet the definition of qualified improvement property because they are improvements made to a structural component of a building. However, under the TCJA the qualifying property for Section 179 expensing has been expanded to include the following improvements to non-residential real property: roofs, heating, ventilation, air conditioning, and fire/alarm protection systems.
Bonus Depreciation
Prior to the TCJA, bonus depreciation was limited to 50% of eligible new property. However, the TCJA reform extends and modifies bonus depreciation to allow businesses to immediately deduct 100% of eligible property placed in service after September 27, 2017 and before January 1, 2023. When 2023 hits, the amount of bonus depreciation will decrease by 20% per year until the end of 2026. Qualified improvement property, which now includes restaurant and retail improvements, as well as tenant and building improvements, has been added as eligible property. Eligible property has also been expanded to include used property, which is a significant and favorable change from previous bonus depreciation rules. Additionally, the TCJA eliminates the requirement that the original use of the qualified property must begin with the current taxpayer. This means that businesses can take bonus depreciation on assets that are acquired from a previous user, as long as the current taxpayer did not previously use the acquired property and the property was not acquired from a related party. The TCJA also added qualified film, television, and live theatrical productions as types of qualified property that are eligible for 100% bonus depreciation. In addition, there is no limit to asset spending in a given year and no limit on the deduction amount that can be taken.
Things to Remember
Businesses must keep in mind that not all states allow bonus depreciation, and therefore, the deduction may need to be added back to income on the respective state return(s). Also, businesses do not have the option to select specific items for the deduction. In a given year, taking bonus depreciation on one asset requires the company to take bonus depreciation on all assets that fall into that respective asset class.
Looking Ahead
The TCJA will help businesses with cash flow issues in particular, because it could potentially reduce their taxable income in the year of the deduction, therefore lowering their tax liability. However, even if your business is not experiencing cash flow issues the TCJA can still be a boon. The TCJA is the biggest tax overhaul since the Tax Reform Act of 1986 and these specific depreciation and expensing changes can have a profound effect on your business taxes. You do not want to miss an opportunity to expense 100% of certain assets and improvements, especially if you are in the real estate or construction industry.
To learn how you can achieve the greatest benefit for your business today, contact John J. Rainone, CPA/MBA, CCFIP at 401-921-200 or jrainone@disantopriest.com.