When Albert Einstein said taxes are the hardest thing in the world (circa 1950), he hadn’t even seen the Tax Cuts & Jobs Act. This is the year of patience, my friends, and the more proactive you are about communicating that to clients, the more zen you, your staff, and your clients’ year will be.
Here’s the deal … everyone in our industry is still figuring things out, including the IRS. I detest delays and the stereotype that accountants procrastinate, but this is the first year I’m telling clients that delays are in their best interest. Why? So we have final guidance and can maximize tax strategies around it.
Does TCJA even impact 2017 returns?
Yes! Mainly for mortgage interest, bonus depreciation, medical expenses and pre-payment of 2018 SALT.
What will cause the most delays?
The change that gets me flustered is bonus depreciation on new or used assets placed in service after Sept. 27, 2017. This is a mandatory method, and you have to opt out on the return by the extended due date by class type (i.e., all five-year assets grouped together). This could be a headache for taxpayers by creating write-offs that don’t match loan cash flow, losses without benefits (like SE tax), unusable NOLs, etc. On the other hand, it will also be amazing to fully expense an SUV, but there are still limits on most vehicles.
What are clients surprised about?
Just about everything … here’s a few I’d nip in the bud:
- Whether their pre-payment of property or state income taxes by Dec. 31, 2017, is going to be deductible. This will depend on which state your client is in.
- That the ACA health coverage penalty does still apply until Dec. 31, 2018, and you are required to check the box for e-filing their 2017 return with the IRS.
- Some provisions expired Dec. 31, 2016, and aren’t available in 2017: tuition deduction, mortgage insurance premium deduction, energy credit and cancellation of debt on principal residence.
Is there anything easy to consider for 2017 returns?
The medical deduction on Schedule A is extended to 7.5 percent for 2017. Hopefully, you told clients to bunch their medical expenses into December 2017 as much as possible. Or, if you have a client with a business and are looking for a more beneficial way to deduct medical expenses, contact the American Institute of Certified Tax Planners ASAP for insight.
Should clients make entity changes right now for the 2018 business tax cuts?
No! There’s plenty of time left in the year (and into next year), to make timely (or late) elections, and it’s your job to proactively tell clients this before they jump into a mistake. Sure, go ahead and form an LLC, but don’t lock them into a particular structure like C or S Corporation until we have more guidance on the passthrough deduction. Intuit® is releasing its 2018 detailed analyzer in March, so offering summer tax planning appointments seems like good timing to go over these things.
Any other tips for making it through this season?
Make sure you are asking the right questions in your organizer to avoid confusion and delays. Then, carve out groups of clients to project out work each month of busy season, based on organizer responses or prior year info. We’ve historically had four groups at our practice, but this year I’ll have a fifth category:
- A Clients – those who have a business we prepare monthly financials for (easiest internal K-1s, spring or summer filers).
- B Clients – those who have a business we prepare financials for quarterly or less often (evenly apply throughout the extended season).
- C Clients – those with complex 1040s with outside K-1s (April estimate, then fall finalize).
- D Clients – those with simpler 1040s with no K-1s (March).
- NEW E Clients (for easy as pie) – D clients that have no mortgage changes after Dec. 15, 2017, or new depreciable assets after Sept. 27, 2017 (Jan/Feb).
How can I prepare while we twiddle our thumbs and wait?
Take as much continuing education as you can get your hands on, and join a Facebook group to discuss topics with like-minded professionals. Make sure to proactively communicate (thinking is not doing) potential release dates of your organizer (with new questions for the Tax Cuts & Jobs Act), filing season expectations and what impacts your clients’ 2017 returns.
Editor’s note: This article was originally published in CPA Practice Advisor.