Misconceptions about the new tax laws for 2018

[RitaB]

Thanks!

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.

[Rapid Robert]

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.

[RitaB]

We need it

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.

[JuneC]

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!

[ATSMAN]

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!

[kathyc2]

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.

[Twin Turbo Z]

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.

[DonB]

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.

[Twin Turbo Z]

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.

[JuneC]

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.

[JuneC]

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, exactly. The Impact report is just a tool I use to help them understand that 'based on this year's numbers, things will stay about the same, they may change for the better, but it's likely they won't get worse for your tax picture.' I'm also very careful to explain that the key word with this report is 'Potential' and that they must keep in mind that things could look very different a year from now. And for those interested, we use the 2018 Planner to do an actual projection. Those are the visits I enjoy; the ones with folks who know their 2018 numbers and want to see how they can be prepared for next tax season. Planning for the coming year is one of my favorite parts of my job.

[JuneC]

Welcome to the forum, JuneC! Quite a first post you made there.

You titled your thread "Misconceptions". I didn't see any reference to this in your own comments, or the extensive quotes you posted. What "misconceptions" were you talking about?

Since you invited it, I will add two mild comments here: 1) your paid-preparer client base in Wisconsin does not appear to me to be representative of the U.S. population as a whole, so I'm not sure any global conclusions can be drawn from your experience. Surely you are aware that the tax law was designed to give relatively more tax cuts to some states than others, and especially some income levels over others. Do you have any corporate clients, maybe with overseas assets? That was the biggest target of all in the tax law. 2) to the extent people get bigger refunds, it's really just like a payday loan -- a little extra walking-around money for now, and a huge, hidden bill to pay down the road.

Hello! You're correct, I didn't explain what I meant by 'misconceptions.' I was referring to the misconceptions some of my clients seem to have. Some have expressed fear that they would be owing large amounts of tax. Others have expressed fear that the government is going to 'screw them out of their hard earned money.' And I had one young lady so nervous she was shaking her legs and frantically biting her nails. When I asked her if she was nervous about having her taxes done, she replied, "Yes, I'm beyond nervous. I'm scared. My mother told me I'm going to owe lots of money this year thanks to the dingleberry [other unkind words here] POTUS.' And of course, the folks who have already seen lower withholding from their paychecks are very unsettled that they're going to be 'covered' at tax time with such a decrease in withholding.

No, no corporate clients; I prepare strictly individual tax returns. And yes, I realize it's different in different states, which leads to why I'm curious as to how things are looking for tax pros in other states.

[geekgirldany]

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

I am telling clients that itemize the Federal tax maybe lower but because you more than likely can not itemize the state tax will be higher. I am nearly thinking it might offset the refund on Federal.

[ATSMAN]

We're 3 weeks into season and I'm curious what everyone's experience is regarding the new tax laws. I use Drake Tax software and we have a handy dandy worksheet that shows the potential impact of the new tax laws and how it will look on the client's 2018 tax return. So far, after writing 300 returns, we've had only ONE client who will see a lower refund next year; the other 299 will see a higher refund. Some will double, a few will triple and a few more will see a quadruple of their refund.

Pay close attention to what Kathy has posted. Most taxpayers will have a lower tax liability - a good number of those taxpayers will also have lower refunds next year. The new withholding tables are giving some of the refund NOW. There will be some unhappy taxpayers next April 15 if you just tell them there refunds will be bigger based on the Drake projection.

You are absolutely correct. Focusing on refunds will land you in trouble. I always emphasize that the total tax may be lower if the assumptions hold out but their actual refund is a function of how much was withheld. I actually use a highlighter and ONLY highlight the total tax amount!

Unfortunately in our business we have focused too heavily on the "Refunds" ignoring what contributes to a refund!

[geekgirldany]

I am not including the Tax Impact Worksheet from Drake. It gives people a false perception of what their refund will be in 2018. They will not look that the tax liability will be lower... the look at the end result which majority of the time shows them getting a larger refund. I explain as other discussed I just don't mention "larger refund" just that their taxes will potentially be lower.