Tax Season Preview The elephant in the room
Special Report: The Tax Cuts and Jobs Act will dominate the coming filing season
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