Adjust Your Client Advice to the New Tax Law Realities

Challenge: Many unanswered questions about the Tax Cuts and Jobs Act remain

The Tax Cuts and Jobs Act of 2017 ushered in sweeping changes to the ways both individuals and businesses file taxes. That means clients will be looking to tax pros, more than ever, to be not just tax preparers but tax compliance specialists who can address a financial past. With many tax law changes going into effect for returns filed in 2019, you must encourage clients to implement a smart planning strategy—now.

There are host of issues to consider this year, says tax pro Arthur Joseph Werner, including changes to: the Affordable Care Act, standard and itemized deductions, tax credits, pass-through business tax rates, exempt organizations, and recovery periods. Further, tax pros need to find new paths for a client’s tax, financial, and estate plan, Werner notes in his Eli Financial webinar, “Navigate the Tax Cuts and Jobs Act: Law and Planning Issues.”

Congress and IRS Slow to Divulge Key Details

While there are changes to tax law every year, those changes are often linear and direct, notes financial management firm Intuit: Taxes go up or down, deductions are added or taken away, and a tax write-off is added, expanded, or decreased. But the Tax Cuts and Jobs Act (TCJA) of 2017 “is a different story, with both pluses and minuses that will impact your clients in different ways,” Intuit said.

Prroblem: Continuing uncertainties around how to interpret the various provisions of the act means tax law planning is more difficult than usual, notes Accounting Today.

“The Internal Revenue Service [IRS] has yet to issue any proposed regulations on the subject, instead issuing a series of notices, information releases and frequently asked questions telegraphing what that guidance is likely to say on certain key points when it is eventually issued,” Accounting Today writer Mark A. Luscombe said. “Congress has also not been quick to follow up on the enacted legislation with technical corrections or with its promised Tax Reform II effort.”

Take It Slow—for a While

While taxpayers can take some steps to position themselves favorably when it comes time to file taxes in 2019, many pros are cautioning against making huge changes since there are still so many unknowns.

“Acting IRS Commissioner Dave Kautter has indicated that TCJA guidance may take a couple of years and that, in some cases, the best guidance to taxpayers may come from the instructions to forms for 2018 tax returns,” the Accounting Today story added.

What We Do Know: Deduction Rates & Limits

Despite much uncertainty, there are some solid takeaways from the reform law. Focus on these when advising clients this year.

Individual taxes:

  • The new 20-percent deduction from qualified business income for pass-through businesses will likely apply to many sole proprietorships or partnerships with income under $157,500 (double that for joint filers), explains the Tax Policy Center.
  • The TCJA placed a $10,000 annual limit on state and local tax (SALT) deductions but did not address property tax prepayments. How this is handled is up in the air, so be cautious when advising clients enquiring about prepayments, notes Accounting Today.
  • The interest on home equity loans deduction is, for many taxpayers, dead, The New York Times reports.
  • Since new withholding tables were not released until January and did not go into effect until March, many employees likely over-held during the first quarter.

Business taxes:

  • There are new limits on business interest deductions—of particular note is the limit of 30 percent of adjusted gross income, notes RSM.
  • The law provided a 100-percent bonus depreciation for new and used quality properties and an expended deduction for smaller businesses, notes Bloomberg, but there are concerns over limits to qualified leased property and confusion about expensing in a partnership context.
  • There are changes to moving, mileage, and travel expenses, all of which are covered under Information Release 2018-127.
  • Blended corporate tax rates apply to corporations whose fiscal year includes Jan. 1, 2018.

These are complicated times for tax pros, Werner says. Of course the good news is that these are complicated times for taxpayers too, and they’ll be relying on your for sound counsel. So begin with a full understanding of the law and its intricacies.

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Jeff Schmerker

Jeff has extensive professional experience writing on a variety of topics, from pharmaceutical research to environmental history. He has published more than a half-dozen books, and he has worked as a newspaper reporter, magazine editor and restaurant reviewer. He lives in Missoula, Montana with his wife and son.

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