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New tax law created one of the most challenging seasons ever faced

By BECKY GILLETTE
mbj@msbusiness.com

Early in the year, CPAs in Mississippi predicted that the Tax Cuts & Jobs Act of 2017, which ushered in some of the most major changes in U.S. income tax law seen in a long time, would not necessarily make filing a tax return easier. While the tax reforms benefited both large and small business, and many individuals, the changes were comprehensive and it has been not been an easy transition either for taxpayers or tax preparers.

  “The TCJA has made this season one to remember,” said Marsha Dieckman, CPA, HORNE LLP, Ridgeland, partner in charge, wealth strategies, firmwide director of tax operations. “The changes are voluminous with so many moving parts impacting other decisions.”

The TCJA was billed as legislation that would simplify the tax code.

“Simplification? Not in my practice,” Dieckman said. “The change in the forms alone makes prior year comparisons and explaining the results to the taxpayer harder than in previous years. Overall, the majority of taxpayers we serve have been positively impacted, especially business owners. The compliance burden has increased, but the reduction in taxes makes it worth it for most.”

Dieckman said a big takeaway for W-2 employees is check your withholding. Tax tables resulted in more take home pay each month and less of a refund for many.

“That can change in 2019 if taxpayers are proactive,” she said.

Ted Edwards, CPA, senior member in charge of tax services for Haddox Reid Eubanks Betts PLLC, Jackson, early in the year predicted it would be an “interesting” tax season. That has proven to be true.

“Absolutely, the new tax laws have created confusion,” Edwards said. “Frankly, even those of us who work in this world all day, every day, are trying to figure things out. As CPAs, we are required to prepare tax returns in accordance with the tax code and the other official guidance provided by the IRS. We all do our best to do that; however, when the law and other guidance is not clear, it makes it difficult.”

Are more people seeking professional help? Edwards said he doesn’t know for certain, but believes most of the new clients he has picked up this year came to him because of the tax law changes.

“I will say that the 1040 looks totally different, which could, in itself, cause more people to seek professional help,” Edwards said.

He has seen more people filing for extensions of time to file taxes.

“The changes in the tax law have certainly contributed to this being an unusual and difficult tax season,” Edwards said. “As a result, I do anticipate there will be more extensions filed.”

There were winners and losers with the new tax code. But Edwards thinks that many, if not most, taxpayers are paying less taxes under the new tax structure.

“However, there are certainly exceptions,” he said. “There is no way to categorically answer who are the winners and losers with the new tax rules. I think generally lower to middle income taxpayers are winners, whereas, higher income taxpayers may not be.”

Melanie Woodrick, CPA, tax services team leader for GranthamPoole Certified Public Accountants in Ridgeland, agrees this has been one of the most challenging tax seasons they have faced.

“The new Tax Cut and Jobs Act created tremendous opportunities for tax saving for our clients,” Woodrick said. “These tax savings opportunities require thoughtful planning and execution to be successful. Fortunately, we got a jump on much of the planning. However, the IRS was considerably behind on finalizing regulations and forms this year and this pushed the software providers behind schedule. “

That has meant they are filing extensions for more returns than usual to ensure successful execution of tax plans and to look for additional opportunities for tax savings for their clients.   

“For those clients whose returns we have completed, we have found that, in general, this year provided an overall reduction in federal taxes,” Woodrick said.

It may be too early to figure out how people were affected by the new law, said Dale L. Flesher, professor of accountancy and associate dean, Patterson School of Accountancy, University of Mississippi.

“Refunds have been down so far compared to last year, but that might be misleading because the withholding tables were different in the two years,” Flesher said. “People cannot be really sure how they will be affected until they prepare a return. Someone might think they will benefit from the higher standard deduction, but that will be offset by the loss of the exemption deduction. Also, the impact of the limitation on state tax deductions depends on your income level and the state and community in which you reside. In summary, there were so many conflicting changes that you can’t make an overall assessment of what the net impact will be.”

Flesher said Section 199-A is quite complex. Section 199A provides many owners of sole proprietorships, partnerships, S corporations and some trusts and estates, a deduction of income from a qualified trade or business.

“Many people (small-business owners) don’t know if they are eligible, and then if they learn that they are eligible, they might get no benefit because of the phaseout due to excessive income,” Flesher said.

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About Becky Gillette