As we start to see Christmas commercials on TV and decorations already available in stores, it won’t be long until we’re finished with 2021 and moving onto 2022. For funeral home owners, it’s always a good time to think about your taxes and start making sure everything is in order before the end of the year.
Nick Colanzi Jr., Senior Manager of Bowman & Company LLP, of Voorhees, New Jersey, has been advising small businesses, including funeral homes, on tax issues for the past 25 years.
“My first 15 years, I worked with family-run businesses which are a lot of the same ways funeral homes are set up,” Colanzi says. “About 10 years ago we acquired a solo practitioner who specialized in being an accountant for funeral homes in New Jersey. We basically merged his practice into ours and I was part of the transition of his funeral home clients to our firm. My main focus now is on funeral homes.”
Colanzi grew up in Philadelphia, graduated from Villanova University, and has spent his entire career with Bowman & Co. “I’m an avid Villanova men’s basketball fan and I enjoy watching all the Philadelphia sports teams play,” he says.
In addition to the 30 to 40 funeral homes he handles, Colanzi also provides a wide range of accounting and tax services to a variety of other business entities, individuals, estates and trusts. He is knowledgeable in all phases of financial statement preparation, participates in employee recruiting at local universities and is involved in the firm’s quality control inspection program.
“Our concentration of funeral homes we service are located throughout New Jersey as well as Pennsylvania and New York,” Colanzi says. Funeral Service Insider recently had a chance to talk with Colanzi about what funeral homes should know as they start to prepare their 2021 taxes and what changes could lie ahead.
What are the tax concerns for funeral home owners as we come to the end of 2021?
The key is to properly prepare, plan and manage earnings in order to minimize taxes. This can be through owner and staff bonuses, acquiring much-needed assets – such as equipment, furniture, and vehicles – near year-end and perhaps making a retirement plan contribution for the benefit of the funeral homeowner and staff.
Are there any laws that will change in 2022 that will impact funeral home owners?
As of now, everything is about the same. There has been wrangling in Congress over President Biden’s infrastructure bill. One key item that could be of interest to funeral home owners if that bill passes is potentially subjecting funeral home operating income earned through a pass-through entity such as an S corporation or LLC to the net investment income tax surcharge of 3.8%.* That’s the only thing right now that’s proposed that may have an impact.
*Please note the passed infrastructure bill did not contain this provision. For additional information related to this potential tax provision, contact Nick or your Bowman representative.
How did the Tax Cuts and Jobs Act signed into law just before Christmas 2017 affect funeral homeowners?
It enhanced depreciation deductions for funeral homes, especially bonus Section 179 that allowed depreciation for items such as equipment, vehicles and the ability to deduct certain building improvements in the year of payment rather than over a period of many years under the prior law.
Also, the qualified business income deduction helps to shelter funeral home operating income earned through a pass-through entity such as an S corporation or LLC from income tax.
It was a good thing, especially on the building improvements. Funeral homes are constantly upgrading their facilities. In the past, you had to depreciate building improvements over a period of time and the new act allowed one to deduct the full cost in a year of payments.
What services does an accountant offer to a funeral home?
In addition to your typical CPA services of tax returns, financial statement preparation, accounting and bookkeeping – because we have a niche in funeral home accounting – we provide a number of “value-added” services. These include business succession planning, acquisition analysis, business structure determination, bank negotiations and business startup assistance.
What are the keys to good record keeping?
No. 1, I recommend using an accounting or bookkeeping program, such as QuickBooks or Sage, and keeping timely records. The whole idea is for your records to be up to date and ready to be reviewed. If you are too far behind, you won’t be prepared. You want to keep track of operating activity, keep that operating activity up to date and create a good accounting “trail” starting with source documents all the way to the final recording of the activity in the software program.
Do you find that funeral homes have some common issues with the handling of their taxes?
Funeral homes are not that uncommon with other businesses from a tax standpoint but there are some nuances in their accounting and how these are handled and presented on a tax return. Two examples are customer advances where the funeral home often pays a number of upfront expenses for customers (such as cemetery and church fees, flowers, obituaries, etc.) and then bills for these expenses after the services are rendered.
The second, specifically for New Jersey funeral homes, is for those that are members of Thanexus Inc., a funeral home cooperative, also known as PEO (professional employer organization). The PEO is the “employer” for accounting and tax purposes and the funeral home pays a service fee to the PEO to manage the employer relationship for payroll, insurance and employee benefits purposes. The funeral homeowner does not lose his or her autonomy in managing the funeral home but rather gains a valuable human resources type partner in the PEO.
What else can you tell us about Bowman & Co.’s involvement with funeral service?
We exhibit annually at funeral home conventions and we sponsor events throughout the year to talk about succession planning for funeral homes. We occasionally speak to students at the local mortuary schools about our experience with working with funeral homes.
I have enjoyed the funeral home niche where you can provide hands-on advice to them and provide something that is worthwhile. One of the keys is the succession planning, so many funeral homeowners don’t have a plan in place and they should start thinking about that. They have to get the ball rolling; something could happen and they have nothing is in place to keep the business going. It’s like the shoe cobbler who fixes everyone’s shoes, but still has holes in his shoes.