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Misconceptions about the new tax laws for 2018

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    #16
    Originally posted by FEDUKE404 View Post
    My software has what amounts to an enhancement to the "what if" scenarios it has always had. The extra is that, from the inherent data file, it "recalculates" the potential 2018 tax using the same income/deductions shown on the 2017 return. Personal exemptions go away, itemized deductions are shown but may become standard deduction, new standard deduction amounts are shown, etc.

    Aside from already having a reasonably good (general) mental idea of how the new law will change things, this calculation helps more. It is certainly no substitute for sitting down and grinding out a "2018" return piece by piece, but to go that route is untenable and costly to clients. There are only so many hours in a day.

    Getting on topic: For the bulk of the returns I've worked on so far, the 2018 federal tax liability will be lower than their 2017 federal tax liability is.

    Anyone who focuses on "refunds! refunds! refunds!" is both missing the point and asking for later trouble. If you tell your client their projected taxes will be lower by $1,500 next year, and their "refund" only increases by less than $500. . .you're gonna have a big problem! Helpful hint: The recent federal withholding changes will give taxpayers more/most of their "refund" during the remainder of 2018. Whether those extra funds along the way constitute "crumbs" is an entirely different topic.

    Just yesterday I had a client to go off "All my friends are getting big refunds and I'm not" etc. Of course, their 2017 income increased by $8k and their **taxes** only increased by <$750, but that fact was obviously lost. I did inform them that, using the above source, their 2018 federal **tax** would decrease by roughly $1,500. I guess if their refund this time next year is not larger by the same $1,500, I am completely doomed!

    Sorry to go off. It just rubs my feathers the wrong way when the only focus is "refunds." Maybe the complainers should just use (whatever is analogous to) "single - zero" on their payroll withholding and be happy with a larger refund in the future.

    Alas.

    FE
    Ah yes, if only our clients would understand the difference between their tax liability and their refund amount. Every year, I try my hardest to educate people, line by line, what exactly is happening on their 1040. Some respond with thanks because 'no one has ever explained that to me before' but most just want to get to the bottom line - the refund. It's so fun when we actually get a client that understands what it all means and they show appreciation when we help them make necessary adjustments for the following year. I didn't mean to imply I was focused only on refunds, that's definitely not the case for me. But sadly, for many of my clients, it's all about that REFUND! And you're exactly right - when people just can't absorb what I'm explaining about tax liability and are whining about getting screwed, I just revert to telling them 'Single and 0 on your W4.' Often times, they come back the following year understanding what I mean when I tell them, 'Your tax is your tax, it's just a matter of how you choose to pay it - a little at a time from your paycheck (at the expense of a smaller refund) or more from your paycheck (which increases your refund).'

    ETA - I can relate to your story about hearing what their friends are paying. Along similar lines, I had a gal today who wanted me to tell her how she could get a bigger refund without taking so much out of her paycheck. I suggested putting more into her retirement, she wasn't interested. I suggested putting into an HSA, 'Oh, I don't like those.' And lastly, I joked that she could have more dependents. And when that wasn't an option, I changed the subject because I realized I wasn't going to get through. She felt she was getting screwed by the government and there was nothing I could say that would change that.
    Last edited by JuneC; 02-17-2018, 05:07 PM.

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      #17
      I find the simplest way to explain the new tax rates as such. Someone above stated this too. You either get it each week on your paycheck or at tax time. I also tell them if they dont need the extra monies each week, max out their 401k or start an HSA (as mentioned above). That too will help them come tax time next year.

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        #18
        Colorado tax going up in 2018

        [QUOTE=FEDUKE404;190139]I only go as far down as the income/AGI/deductions/standard deduction/itemized deductions, view the tax liability amount, and IGNORE anything related to federal withholding. That gives an accurate representation of where things are likely going. If the client wants further, then THEY can give me some "up to date numbers" on their current/projected 2018 withholding later in the year.

        And, of course, I never utter the word "refund" in these types of client discussions.

        As a side issue: What is everyone doing, if they are asked, to come up with an answer for STATE 2018 income taxes? One would think the federal tax changes could, under the right circumstances, have some meaningful impact on the non-federal income taxes. (I doubt if any affordable tax software cranks out a projected 2018 state summary!)

        FE[/QUOTE

        I looked at three returns and in all three 2018 Colorado taxes will go up. Colorado tax starts with federal taxable income. If itemized deductions are higher than the new standard deduction, the taxable income will increase by the lost exemption amounts ( $4,050 x number of exemptions). 4.63% x $4,050 = $188 increased tax. Those gaining by the new standard deduction will have this moderated.

        My 1040 practice with no walk-ins will generally be easier with many Schedule As gone. My schedule E & Cs will not get into the higher income restrictions on QBI.

        No one is complaining. One minister wanted to know how "the tax scam" was going to effect him.

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          #19
          Comments on refund-itis

          Originally posted by JuneC View Post
          Ah yes, if only our clients would understand the difference between their tax liability and their refund amount. Every year, I try my hardest to educate people, line by line, what exactly is happening on their 1040. Some respond with thanks because 'no one has ever explained that to me before' but most just want to get to the bottom line - the refund. It's so fun when we actually get a client that understands what it all means and they show appreciation when we help them make necessary adjustments for the following year. I didn't mean to imply I was focused only on refunds, that's definitely not the case for me. But sadly, for many of my clients, it's all about that REFUND! And you're exactly right - when people just can't absorb what I'm explaining about tax liability and are whining about getting screwed, I just revert to telling them 'Single and 0 on your W4.' Often times, they come back the following year understanding what I mean when I tell them, 'Your tax is your tax, it's just a matter of how you choose to pay it - a little at a time from your paycheck (at the expense of a smaller refund) or more from your paycheck (which increases your refund).'

          ETA - I can relate to your story about hearing what their friends are paying. Along similar lines, I had a gal today who wanted me to tell her how she could get a bigger refund without taking so much out of her paycheck. I suggested putting more into her retirement, she wasn't interested. I suggested putting into an HSA, 'Oh, I don't like those.' And lastly, I joked that she could have more dependents. And when that wasn't an option, I changed the subject because I realized I wasn't going to get through. She felt she was getting screwed by the government and there was nothing I could say that would change that.
          It is unfortunate that these boards have no way of "liking" or "giving a thumbs up," but rest assured, if such were possible, your comments are quite deserving of such.
          You absolutely nailed it!!

          Thanks for making my day.

          FE

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            #20
            Dealing with state income tax upticks

            Originally posted by DonB View Post
            I looked at three returns and in all three 2018 Colorado taxes will go up. Colorado tax starts with federal taxable income. If itemized deductions are higher than the new standard deduction, the taxable income will increase by the lost exemption amounts ( $4,050 x number of exemptions). 4.63% x $4,050 = $188 increased tax. Those gaining by the new standard deduction will have this moderated.

            My 1040 practice with no walk-ins will generally be easier with many Schedule As gone. My schedule E & Cs will not get into the higher income restrictions on QBI.

            No one is complaining. One minister wanted to know how "the tax scam" was going to effect him.
            You've pretty well reinforced my concern, as many states do, indeed, "start" with federal taxable income. Folks in CO will, to a certain extent, live at the mercy of greater standard deduction vs eliminated personal exemptions. For many, they will likely be close to a break-even point. At least on the federal return the lower tax rates likely should help. But I can see how certain CO folks could lose big time with the new tax rules.

            Fortunately, in NC, our taxes start with AGI and then do the add/subtract regimen. The NC standard deduction is / has been quite generous for some time. For that reason, I do not expect a significant impact on NC taxpayers as a direct result of the federal changes.

            Thank you for your input.

            FE

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              #21
              Here in Ohio the next Gov. election is coming up later this year. And we are praying the next Governor keeps the Ohio Business Credit. Similar to the federal 20% pass through, but better. The first 250k for MFJ and Single filers and 125k for MFS, is not taxed. This includes C,E,F, & B,D,4797 and other misc income tied to a business. Been a nice few years with this credit. And of course the man behind the plan cant run again. Curse !!!! Watch it vanish.

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                #22
                I've found over the years you need to meet clients where they are. With some you can discuss tax liability, and others are unable or unwilling to see anything other than refund.

                Generally I won't bring up 2018 changes unless I need to alert them to something or they ask. I see no upside to telling people their refund will be higher on 2018 returns. If it turns out not to be true they will be upset. If they do get a bigger refund that they weren't expecting they will be happy.

                I generally try to alert people when I know the next year refund will be lower: having a child turn 17, losing HOH status, etc.
                For people without kids under 17 and itemized deductions in 2017 there are situations where 2018 returns will have a significantly lower refund. I'll calculate what it might be so that they have a heads up, or if they want to keep a larger refund advise them on changes they can make on W4 to keep it roughly the same.

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                  #23
                  Originally posted by kathyc2 View Post
                  I've found over the years you need to meet clients where they are. With some you can discuss tax liability, and others are unable or unwilling to see anything other than refund.

                  Generally I won't bring up 2018 changes unless I need to alert them to something or they ask. I see no upside to telling people their refund will be higher on 2018 returns. If it turns out not to be true they will be upset. If they do get a bigger refund that they weren't expecting they will be happy.

                  .....
                  I agree with you, but I think most of us "shot our self in the foot!" by including some language of the 2018 tax law changes in any communication with our clients. To add to this there has been so much media hype about "Refunds" that it is impossible to escape that conversation. If I think about it I think 90% of my clients who had their 2017 returns already prepared brought up the subject one way or the other! I rather have them talk to me about their future tax position instead of the "friendly and know it all" hairdresser or waitress!
                  Taxes after all are the dues that we pay for the privileges of membership in an organized society. - FDR

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                    #24
                    Originally posted by ATSMAN View Post
                    That Drake Tax Impact report assumes that 2018 income and expenses, including withholding will be exactly the same as 2017. So it is not a projection, but rather what would have been the tax position if the new 2018 laws were in effect for 2017 returns. We all know that income, expenses and withholding will most likely change for 2018 so you have to use the Drake Tax Planner to do any 2018 projection.

                    In my practice roughly 25% to 35% of the folks filing Sch A will switch to Standard Deduction. I have not done a complete analysis but that is on my #1 project after tax season.

                    I am currently more concerned about doing 1040-X for those who may benefit from the retroactive extenders. I already have half a dozen taxpayers in line!
                    Yes, I'm finding that it's best to explain things WITHOUT using the Impact Report. I explain that their tax will go down, as will their withholding. Any increase in refund they MAY see will be coming in little bits throughout the year on their paycheck. If they still have concerns, I offer to go over a Tax Planner with them towards the end of the season. So far, no one has taken me up on the offer because bottom line, most just want to know if they'll be getting a refund or paying in.

                    I am noticing that quite a few of my clients will also be taking the standard deduction instead of using Sch A, but haven't figured out that percentage just yet. I'll be so curious to see how the numbers look at the end of the season, and even more curious about how they'll look NEXT season!

                    Thanks for the input!

                    Comment


                      #25
                      We need it

                      Originally posted by FEDUKE404 View Post
                      It is unfortunate that these boards have no way of "liking" or "giving a thumbs up," but rest assured, if such were possible, your comments are quite deserving of such.
                      You absolutely nailed it!!

                      Thanks for making my day.

                      FE
                      Agree. The last time I mentioned the "like" button I was told it was not a popularity contest or something similar. Getting props was the last thing on my mind. It would be a great tool to help people know what to research further when there are seven different opinions about something. Which is very often.
                      If you loan someone $20 and never see them again, it was probably worth it.

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                        #26
                        Originally posted by RitaB View Post
                        Agree. The last time I mentioned the "like" button I was told it was not a popularity contest or something similar. Getting props was the last thing on my mind. It would be a great tool to help people know what to research further when there are seven different opinions about something. Which is very often.
                        Getting a lot of "likes" does not make one opinion (tax position) more likely correct than another. Have you ever heard of the blind leading the blind? :-) When there are conflicting positions being advocated, you should look to those who back it up with meaningful citations. Anyway, no matter what anyone posts here or how many agree, you are still responsible for the position you sign on the return, so just make sure you could click "like" on your own conclusion.

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                          #27
                          Thanks!

                          Originally posted by Rapid Robert View Post
                          Getting a lot of "likes" does not make one opinion (tax position) more likely correct than another.
                          Of course it doesn't. But you figure out in a hurry who knows what's what, so we also need to be sure we know the identity of the "liker". Thanks, Rapid.
                          If you loan someone $20 and never see them again, it was probably worth it.

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