Inventions of All Inventions, Watson Evolving To Do Your Taxes This Year!
For freelancers who are just too busy or for SMB operators who wears multiple hats, April 15th is a date that conjures up busy work you just wish you didn't have to do. If you can’t afford to employ a bookkeeper or hire a CPA to do your taxes, the responsibility falls squarely on your shoulders. If you're like me, you may procrastinate or not dedicate enought time to prepare a return that takes advantage of all the tax code allows.
So here comes Watson, Entering Stage Left . . .
So what better news to learn that H&R Block has partnered with a mega-computer to do a lot of the heavy lifting for you this year.
IBM’s Watson has been around for a number of years having received major notoriety for beating Jeopardy champs, the likes of Ken Jennings and Brad Rutter at their own game. This year he's shifting his focus to figuring out your taxes.
According to a New Atlas report this past week, the versatile artificial intelligence unit is teaming up with tax firm H&R Block to set the system loose on the exponential amount of data involved in tax preparation. The intent being to uncover and highlight more deductions and credits for businesses and individuals.
Reporter Michael Irving notes that “ever hungry for data, Watson makes use of machine learning algorithms to mull over more information than a human brain can handle, finding connections between disparate data points that we mere mortals may miss. In the past, the system has been used as a debate partner, nurse, kitchen assistant, and even a film trailer director.”
This year, Mad Men actor John Hamm has been hired as H&R Block's pitchman. In this commercial, he is promoting Watson's new assignment.
Distilling the Tax Code maze
There are currently over 70,000 pages that comprise the U.S. Federal tax code, let alone all the minute changes that happen each year. It’s a daunting task even for the most astute tax preparers.
However, for Watson . . . well it’s elementary. Its machine-learning algorithm “eats terabytes of data for breakfast.”
“IBM has shown how complex, data-rich industries such as healthcare, retail and education are being transformed through the use of Watson,” David Kenny, senior vice president of IBM Watson said in the New Atlas report. “Now with H&R Block, we’re applying the power of cognitive computing in an entirely new way that everyone can relate to and benefit from – the tax prep process.”
With the able assist of Watson, H&R Block is pursuing new and innovative ways to unearth hard-to-discover legalities to surface deductions and credit that otherwise could be missed.
In advance of meeting with an H&R Block tax preparer and Watson, there are a number of things that SMBs should be aware of.
To start, there are some changes to filing deadlines. C-Corp filing dates will be pushed back, while Partnerships', LLCs' and S-Corps' filing deadlines are moving up.
"Small business owners, prepare yourselves for some due date changes this tax season," Richard Lavina, co-founder and CEO of Taxfyle, said. "The due dates for C-Corporations (Form 1120) were pushed back a month from March 15 to April 15. Likewise, the due dates for Partnerships (Form 1120) and S-Corporations (Form 1120-S) were pushed forward from April 15 to March 15.”
Freelancers and small operators who miss their deadlines will be required to request an extension from the IRS and make estimated payments if they expect they owe money. Any money owed to the IRS is still due on tax day even if an extension is granted.
Tax Break Extensions
There are some key deductions and credits for SMBs you should quiz Watson on.
Bonus Depreciation: This is a tax break that allows businesses to deduct 50 percent of the costs for new capital equipment when its’s purchased. This rule will extend through 2019. However, the percentage that can be deducted will decrease each year until bonus depreciation finally ends.
"Bonus depreciation is always a hot button item when it comes up in Congress," Lavina said. "However, this will gradually diminish each year until it expires."
Work Opportunity Tax Credit: This credit incentivizes employers to hire certain long-term unemployed individuals including military veterans. This year it added a 40 percent credit up to the first $6000 in wages for employers who hire workers that have been out of work for at least 27 weeks.
Research and Development Tax Credit: This year there is “a change in the R&D Tax Credit means that businesses that make less than $50 million annually and invest heavily in research can now apply the credit to the Alternative Minimum Tax (AMT) or possibly even to offset payroll taxes,” Lavina said.
Possible Corporate Tax Rate Change
There is a likelihood that the corporate tax rate will decrease with the Trump Administration and the Republican controlled Congress. Currently, the federal corporate tax rate stands at 35 percent, but according to Trump’s campaign promises this could decrease to a rate somewhere between 15 and 25 percent.
"We think that C-Corporations may come back into fashion for small business if the new administration does lower tax rates," Steven J. Weil, president of RMS Accounting, said.
There are other potential income tax changes on the horizon, according to Nate Byers, CPA for JBC Wealth Advisors. "We are expecting to go from having seven tax brackets to three tax brackets, as well as the elimination of the Alternative Minimum Tax (AMT) and the Net Investment Income Tax," Byers said.
"Because of what we expect to be a lower tax environment in 2017, the default suggestion to taxpayers is to accelerate expenses into 2016. If you were going to make a large purchase in early 2017, the tax environment suggests that making that purchase in 2016 will maximize your tax savings."
Tax tips for small businesses
Just because tax law can be complicated doesn't mean you have to get overwhelmed. Here are some tips on how to manage your taxes year-round, before you meet with Watson.
- Think about taxes all year long. Small business owners should not treat income taxes as a once-a-year event. Rather, tax planning should be a year-round activity. Waiting until the last minute makes tax preparation more complicated, and it limits your money-saving options.
- Hire a pro. A knowledgeable tax attorney or accountant is well worth the expense, experts say. Tax laws are complex, and they're difficult for many busy small business owners to weed through. A professional can identify tax breaks and deductions you might otherwise miss.
- Be aware. Even with the help of a skilled professional, a small business owner must keep up with news related to laws. Read the business papers and keep up with Congress' work on tax laws.
- Don't make assumptions. Tax planning, to some extent, is a gamble. Never make business decisions assuming that particular tax breaks will pass, or that certain policies will be enacted.
Links and Resources
For additional help with your small business taxes, here are some resources:
- The IRS website has information about how the ACA [the Affordable Care Act] affects small business owners' taxes here. Note that changes to the ACA may be on the horizon.
- The U.S. Small Business Administration maintains a guide on navigating the tax code and staying up to date on your tax responsibilities as a business owner. Click here for more information.
- The IRS also maintains its own information center on self-employed and small business taxes. You can find the guide here.