Misconceptions about the new tax laws for 2018

[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]

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.

[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.

[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!

[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!

[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.

[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]

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.