Tax Sea­son Pre­view The ele­phant in the room

Spe­cial Re­port: The Tax Cuts and Jobs Act will dom­i­nate the com­ing fil­ing sea­son

Accounting Today - - Opinion - By An­toinette Alexan­der See SEA­SON on 20

The of­fi­cial start of tax sea­son is just around the cor­ner, and many tax prac­ti­tion­ers have, through­out 2017, shifted their tax plan­ning ser­vices into high gear in hopes of bring­ing clients a sense of clar­ity and calm in what looks to be a pre­car­i­ous tax sea­son.

“This is the most tax plan­ning that we’ve ever done at our of­fice, which is ex­cit­ing,” said Jeremy Allen, tax man­ager at Randy K. Jentzsch & Co., a full-ser­vice ac­count­ing firm in Grants Pass, Oregon.

Said Steve Roll, deputy ed­i­to­rial di­rec­tor of fed­eral tax at Bloomberg Tax, “A big piece of the puz­zle is go­ing to be man­ag­ing [client] ex­pec­ta­tions. A lot of the [Tax Cuts and Jobs Act] pro­vi­sions don’t go into ef­fect un­til this re­turn that they’re fil­ing, for this par­tic­u­lar 2018 re­turn. So, we didn’t re­ally feel the full im­pact last fil­ing sea­son. This fil­ing sea­son is where ev­ery­thing hits.”

It comes as no sur­prise that the Tax Cuts and Jobs Act is the ma­jor fo­cus for this tax sea­son. The sweep­ing tax leg­is­la­tion, signed into law by Pres­i­dent Trump in De­cem­ber 2017, im­pacts in­di­vid­u­als and busi­nesses on a level not seen in decades. Sources agree that it means greater com­plex­ity for many clients, es­pe­cially busi­ness clients, and has trans­formed tax plan­ning into a mul­ti­year ex­pe­ri­ence. In fact, the Na­tional Small Busi­ness As­so­ci­a­tion’s “2018 Small Busi­ness Tax­a­tion Sur­vey,” con­ducted on­line in March and April with 953 small-busi­ness own­ers, found that 33 per­cent of re­spon­dents an­tic­i­pate greater com­plex­ity in fil­ing taxes for their busi­ness in 2018 un­der the TCJA.

And in late April the Na­tional As­so­ci­a­tion for the Self-em­ployed re­leased the re­sults of a na­tional small-busi­ness tax sur­vey, which re­vealed that an over­whelm­ing 83 per­cent of re­spon­dents did not have a com­plete un­der­stand­ing of the im­pact the new tax re­form law would have on their busi­ness. The sur­vey of 389 re­spon­dents also found that nearly 60 per­cent be­lieve their taxes will be more dif­fi­cult to com­plete be­cause of the new tax law. Proac­tively com­mu­ni­cat­ing with clients, man­ag­ing ex­pec­ta­tions, and lever­ag­ing tech­nol­ogy will be es­sen­tial this tax sea­son.

TCJA: A web of com­plex­i­ties

“Of the 1,000 pages that the Tax Cuts and Jobs Act was — it was 1,097 pages and then they re­leased 800 more pages or what­ever af­ter that — there’s got to be stuff that we haven’t read thor­oughly. … I think that is go­ing to be a big­ger is­sue than peo­ple think. We can’t take any­thing for granted this year. Ev­ery­thing we are go­ing to have to look at and relook at to make sure it’s right,” said Dy­lan Boss, tax man­ager at San An­to­nio-based firm Akin, Do­herty, Klein & Feuge PC. That be­ing said, there are no doubt sev­eral pro­vi­sions that prac­ti­tion­ers are es­pe­cially fo­cused on this tax sea­son. Here are just a few:

199A de­duc­tion. One of the most talked-about pieces of the TCJA is the Sec­tion 199A qual­i­fied busi­ness in­come de­duc­tion. Com­monly known as the “pass-through de­duc­tion” or the “qual­i­fied busi­ness in­come de­duc­tion,” the 199A de­duc­tion al­lows busi­ness own­ers to deduct up to 20 per­cent of their qual­i­fied busi­ness in­come from sole pro­pri­etor­ships, part­ner­ships, trusts and S cor­po­ra­tions.

“The biggest [is­sue] is the 199A de­duc­tion, the qual­i­fied busi­ness in­come de­duc­tion. … On its face, it seems very nice and easy and then they went and made it ex­tremely com­pli­cated. There’s a lot, a lot to it on top of that. There’s a lot of nooks and cran­nies that you re­ally have to read through and think through, and that, I think, is go­ing to be the biggest chal­lenge,” Boss said.

Said Bloomberg Tax’s Roll, “Ev­ery­one knows about [the 199A de­duc­tion]. It’s a big de­duc­tion. But kind of the other side of the coin for that is that there’s a lot of re­stric­tions on who is al­lowed to take the full de­duc­tion. Most busi­nesses are al­lowed to take it up to cer­tain thresh­olds … but above those num­bers, spec­i­fied ser­vice busi­nesses aren’t al­lowed to claim the de­duc­tion. … It’s go­ing to be re­ally im­por­tant for the prac­ti­tion­ers and their staff to ask a lot of prob­ing ques­tions to see if their clients ac­tu­ally qual­ify.”

Added Mark Luscombe, prin­ci­pal fed­eral tax an­a­lyst for Wolters Kluwer Tax and Ac­count­ing, “Once you are in the tax fil­ing sea­son, then I think the is­sues are de­ter­min­ing whether you are a trade or busi­ness, cal­cu­lat­ing qual­i­fied busi­ness in­come, and, if it’s an is­sue be­cause you are over cer­tain in­come lev­els, then the busi­ness also has to de­ter­mine what are W2 wages and what’s the un­ad­justed ba­sis in prop­erty. Then de­ter­min­ing, even if you are a trade or busi­ness, whether you are a spec­i­fied trade or busi­ness. So, I think all those things can be dif­fi­cult ques­tions to an­swer, at least to cal­cu­late.”

State and lo­cal taxes. A ma­jor curve­ball for many tax­pay­ers, es­pe­cially those liv­ing in ar­eas with high prop­erty taxes, has been the new $10,000 cap on an­nual

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