Tax reform: What you and your clients need to know
New webcasts to examine tax overhaul
The MACPA and the AICPA are offering new webcasts to shed light on the details of the new tax reform legislation:
Dec. 27: Getting to the Heart of Tax Reform: Individual Income Tax Changes and Planning Strategies
This CPE course provides a comprehensive overview of the changes impacting individuals and families as well as critical financial planning considerations and strategies. Get details and register here.
Dec. 27: Understanding the Tax Cuts and Jobs Act of 2017
This class will outline all of the significant changes in the 1,100-page bill. Get details and register here.
Dec. 28: Tax Reform’s Impact on Corporations and Pass-Through Entities
This CPE course provides a comprehensive overview of the changes impacting corporations and pass-through entities. Get details and register here.
Jan. 4-5: 1040 FastTrack
Updates for tax legislation passed in late 2017 and any additional changes that might occur in 2018, along with many important topics that impact clients in these difficult times. The new tax reform law will also be discussed in-depth. Get details and register here.
Jan. 5: Tax Reform’s Impact on International Business
This CPE course provides a comprehensive overview of the changes and guidance on how businesses can identify opportunities and reduce their tax risks with international tax strategies. Get details and register here.
Tax reform is a reality. Congress cleared the final hurdle on Dec. 20, and President Trump signed the Tax Cuts and Jobs Act into law two days later.
The task now is to make sense of what the overhaul means for individuals and businesses.
By now, the highlights have been dissected pretty thoroughly.
The corporate income tax rate will fall permanently from 35 percent to 21 percent, effective for 2018. The bill also “creates a 20-percent deduction for income of pass-through businesses that pay taxes through the individual code,” The Hill’s Naomi Jagoda and Cristina Marcos report.
Individual income tax rates also will fall, but only through 2025. The number of tax brackets is unchanged at seven — 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. The individual alternative minimum tax (or AMT) remains, though with a higher exemption than under the previous law. The corporate AMT has been eliminated.
The bill also effectively repeals the Affordable Care Act’s individual mandate, which required people to buy health insurance or pay a tax penalty.
To trudge a little deeper into the weeds, we turn to the following analyses, courtesy of some of the profession’s foremost tax thought leaders:
- Read the final bill in its entirety (NPR)
- What the tax reform bill means for individuals (the Journal of Accountancy)
- How tax overhaul would change business taxes (the Journal of Accountancy)
- How the tax reform bill would affect eight U.S. families (Bloomberg)
- What your itemized deductions on Schedule A will look like (Forbes)
- What’s in the GOP’s final tax plan (CNN)
- Tax reform: The Accountants' Full Employment Act? (Accounting Today)
- Gov. Hogan says he will submit legislation to protect Maryland taxpayers from federal overhaul (The Baltimore Sun)
- Tax reform bill has some hidden gotchas (Accounting Today)
Disappointment from the profession The bill is a bit of good news and bad news from the profession’s point of view.
“While the tax reform legislation contains several provisions that should be welcomed by CPAs and their clients, the AICPA is very disappointed by lawmakers’ decision to exclude CPAs from the measure’s treatment of pass-through entities,” said AICPA President and CEO Barry Melancon.
“Congress should have provided parity for pass-throughs, regardless of their line of business, in order to achieve a fairer, simpler, and more competitive tax code,” Melancon added. “The AICPA pointedly and repeatedly made the case that all professional service firms – including accounting firms – should have received the new deduction. The professional services sector, a critical element of America’s economic success, has been ignored. Accounting firms play an important role in the nation’s growth and job creation and legislators erred in excluding them. Those who suggest that CPA firms can adjust to the change by reforming as C corporations do not understand that the nature of state licensing regulations make such a transition impractical, if not impossible.”
IRS under siege? One potential consequence of the new law: It will saddle an already under-funded and under-staffed Internal Revenue Service with putting the reforms into practice just as tax season kicks into high gear.
“If the budget keeps being cut and the agency keeps being given more things to do, the IRS is simply not going to work,” former IRS Commissioner John Koskinen told New York Times reporter Patricia Cohen, who added: “Either the information technology will fail, forcing the filing and refund systems to collapse, (Koskinen) warned, or enforcement and audits will become so scarce that fewer people will be inclined to pay the taxes they owe.”
The final verdict? Who knows? Will the overhaul work as Republicans hope, boosting personal and corporate spending and giving the economy a shot in the arm? Will it backfire while adding an estimated $1.46 trillion to the national debt over 10 years? Will a shrinking IRS collapse under the reform plan’s weight?
Time will tell. In the meantime, there should be plenty of work for tax practitioners in the short term.