An economy in transition, sweeping healthcare reform and stimulus-driven changes to taxes and hiring just begin to tell the story of a busy year in the accounting industry. 

The best news, according to numerous accounting leaders, is more work coming down the pike thanks to clear evidence that Greater Cincinnati's economy is finally emerging from a grueling recession. 

"Plante & Moran is starting to see signs of an economic recovery," says Blake Roe, partner in the Cincinnati office of Plante & Moran. "We have added staff over the past year, we're doing more work with local municipalities and we are seeing a greater interest in general business and operational consulting than we had over the past couple years."

Matthew Jessup, audit practice leader of Grant Thornton's Cincinnati office, concurs: "I think more people are talking about deals and getting further down the path with existing deals. I would say "¢back in the growth mode.'"

James C. Ellerhorst, office managing partner at Deloitte Tax LLP, is also looking forward. "At the same time, with each passing day it is becoming clearer on who will be the survivors of the Great Recession. For businesses that have strong balance sheets and access to capital it is a good time to be growth-minded."

There are plenty of other changes in the air, too, that businesses of all sizes need to account for, especially in taxes and tax reporting, according to Larry Baker, tax partner at Grant Thornton's Cincinnati office.

"You're seeing increased activity by the IRS, really ramping up with new personnel at all levels with the intent of increasing audit activity," he says. The likelihood of the IRS keeping closer tabs on tax reporting means businesses need to be sure that their books are in order and concretely defensible should the tax man come around.

In addition, the United States is working with other countries on agreements that would coordinate audits of multinational companies, making it harder for would-be tax cheats to hide income but adding scrutiny to straight-shooting multinational companies as well. The International Financial Reporting Standards, or IFRS, is a system that is "...less of a rules-based approach to accounting," explains Ellerhorst. "It's more principles-based, which means it allows for more judgment in how various business transactions are viewed and classified."

Changes Ahead

Big changes in tax law concerning S and limited liability corporations should also prompt a re-evaluation of business structure for some companies, Baker says.

Congress and federal agencies are hashing out details on changes to tax rates and who is affected, posing the possibility that tax rates for owners of S corporations will rise significantly "” or not.

"At the end of the day, what is going to be the effective tax rate for closely held? It could be well over 40 percent," Baker says.

There is no cookie-cutter answer for current S or limited liability corporations as to whether staying put or becoming a C corporation is more financially advantageous, but it's a question that many businesses should explore to minimize their taxes, Baker says.

For high-wage earners, this year's healthcare reform will eventually translate into higher taxes. Couples earning $250,000 or more will see a 0.9 percent increase in the employee portion of their federal income tax for Medicare funding. A new 3.8 percent Medicare tax on unearned income, capital gains, dividends and interest will apply beginning in 2013 to couples filing jointly with modified adjusted gross income exceeding $250,000. Individual filers will pay the tax if their adjusted income exceeds $200,000, begging the question of whether married couples are better off filing separately.

Depends, says Baker. In many cases, rate tables for filing jointly outweigh the disadvantage of the new Medicare tax, but couples would be well advised to check with a professional.

Bill Hesch, a CPA and lawyer who works with many smaller clients, prides himself on boutique service that includes taking evening and weekend calls when needed.

He is working closely with clients who are trying to read the tea leaves about where estate taxes will end up in 2011 and beyond. This year, President Bush's phasing out of the estate tax altogether came to fruition, bringing the estate tax rate to zero no matter how large the inheritance. But that legislation expires Dec. 31. If Congress takes no action, the law reverts to taxing all inheritance above $1 million at a 55 percent rate, Hesch says.

Congress is trying to find a middle road. There has been talk of exempting the first $3.5 million, but no new is law passed and the clock ticking, Hesch is developing estate plans for his clients that assume a $1 million cap on tax-free inheritance.

"We're moving ahead and planning on a $1 million estate exemption, and if it comes up to $3.5 million, we'll rework it," he says.

The one constant this year is change "” in tax and accounting practices. Businesses and individuals need to be on their toes to make sure they're complying with modified and new laws to pay no more than required.

Says Jessup: "There is still some uncertainty on what comes with taxes. Everyone is staying tuned to what's coming down and how to react to it."

Tom Schultz
President, CPA
SBS Unlimited Inc.

Q: How can an independent CPA help a small business obtain a bank loan or line of credit in today's tight lending market?

Bill Hesch
Personal Finanacial Specialist, Attorney CPA
William E. Hesch CPAS, LLC