Jury out on tax reform bill; late arrival could impact CPAs

Written on Nov 09, 2017

By Gary Hunt, senior content editor

A late arrival has created a bad first impression for proposed federal tax reform legislation, said OSCPA member Matt Yuskewich, CPA.

Matt Yuskewich“Good tax policy says you don't do something at the last minute, yet here we are,” Yuskewich said. “… Overall, the jury's still out on whether (the proposal) is good or bad.”

The House Ways and Means Committee on Nov. 2 released draft tax reform legislation. The “Tax Cuts and Jobs Act,” H.R. 1, features new tax rates, a lower limit on the deductibility of home mortgage interest, the repeal of most deductions for individuals, and full expensing of depreciable assets by businesses.

Most of the proposed changes, if adopted, will impact tax year 2018 and beyond, but tax planning for 2017 also will be impacted by whatever ultimately becomes law. Yuskewich, of Winterset CPA Group, Inc. in Columbus and chair of the Society’s Federal Tax Committee, said any tax effective for the 2017 tax year could cause delays with both the IRS and tax software companies.

As for the bill itself, Yuskewich said it was a surprise for those prognosticators who were focused merely on rate reductions.

“Given the fact there are 429 pages in this thing, obviously there’s a lot more than just changes in the rates,” he said.

The current code’s seven individual income tax brackets would be reduced to four: 12%, 25%, 35% and a final bracket that remains at 39.6%. Single taxpayers with income greater than $500,000 and married taxpayers filing jointly with income greater than $1 million would enter the 39.6% rate. The standard deductions would increase to $12,200 for single taxpayers, and $24,400 for married couples filing jointly.

However, the bill repeals most other deductions, including those for alimony, medical expenses and tax preparation fees. It also eliminates the deduction for state and local income or sales taxes, except in the case of taxes paid in carrying out a trade or business or producing income. Many credits are also repealed in the bill, as well.

Such changes have the potential to simplify filing for many taxpayers, Yuskewich said.

“The deduction changes are going to eliminate the need for a fair number of taxpayers to file a Schedule A itemized deduction schedule,” he said. “So, it could make filing a lot easier on that end.”

For businesses, the four current corporate rates would be replaced by a flat 20% rate, with a 25% rate for personal service corporations and a repeal of the corporate AMT. The cash accounting method would be expanded for corporations, with a new limit of $25 million of average gross receipts.

“I don't see a whole lot of tax reduction for what I would call the middle- and upper-income folks, other than what they might gain from the lower corporate rates,” Yuskewich said, though he cautioned that it’s too soon to gauge the impact of the bill on individual taxpayers and businesses.

“I am guessing OSCPA members are reading summaries now, but it’s too soon to just look at part of this and sit down and run numbers,” Yuskewich said. “There are just so many moving pieces in this legislation it’s going to be hard to figure out where you fall. For our members, it’s going to spell the need to do some significant planning for clients, and that's hard to do right now because you know this is going to change.”

The Senate Finance Committee is also working on tax reform legislation to be unveiled very soon. As the end of the year approaches, the odds of a delayed filing season will increase, Yuskewich said.

“If the Senate proposal comes out and the big things are the same – same number of brackets, effective dates – then a resolution could happen fairly quickly,” he said. “If there are some major differences, then I think it’s going to take a lot longer.

“You can see this going to the wire… they’ve got a lot of work to do before it even gets to the president’s desk for a signature.”

4 comments

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  1. Taxpaying CPA | Nov 10, 2017

     

    Tax reform should take several months of discussion and vetting.  Our Congressional representatives have no idea of the financial consequences that the current tax package will create.  Maybe we should make them personally liable for the shortfalls that are overlooked, the loopholes that need to be tightened, and other legislative oversights that they have created.

  2. David Laczko | Nov 09, 2017
    In addition to city income tax, for example 2.5%, many of us have school district income tax, for example 2%.  Another issue is the deduction for a particular medical expense that I have come across which can be paid in December, or half paid in November or December and half in January.  Paying half in each year makes liquidating assets to fund the expense much easier, but eliminating the deduction in 2018 n egates that option.  Overall, as pointed out, rushing this through makes reasonable evaluation problematic.  Also, drastic changes conceivably result in drastic results, not smooth sailing and economic adjustment.  By comparison should the federal reserve not consider the impact of tightening the economic easing?  The sudden drop in the corporate tax rate would accelerate growth, but the down side is deceleration which can occur just as fast - boom and bust.
  3. Jeff Eisenman | Nov 09, 2017

    Too much smoke and mirrors.  The bipartisan landmark Tax Reform Act of 1986 was throroughly discussed and debated over a 2 year period, and all stakeholders were listened to at length.  The result was arguably a very good (yet complicated) piece of legislation, and one that revenue neutral.

    By comparison, this proposed bill is nothing short of an abortion.  It is a thoroughly partisan effort concocted in secret and then released with a very limited time for review and markup.  It promises tax relief for the middle class, but in many instances will be a tax increase for this group.

    Most of the benefits go to corporations and the 1%.  Obviously the framers believe in the trickle down theory, despite the fact that there is virtually no credible evidence that this even exists.

    Way to go!

  4. Michael Flickinger | Nov 09, 2017
    They keep saying the standard deduction has been doubled but increasing form $ 6.350 to $ 12,000 is not doubling.  They don't mention that they are eliminating the $ 4.050 personal exemption.  It looks to me that if you are single make 60k to 95k , no kids and currently itemize and have a mortgage, give to charity and pay high property taxes and state/city income taxes to use for your  itemized deductions, you will pay higher taxes. Your lose the  personal exemption of $ 4,050 and without the state and local income tax your itemized deductions will be reduced. They say Ohio is a low income tax state but they forget to add the 2 to 3% city tax that many pay. Without the state income tax deduction, many will not be able to itemize and the rates are not that much lower for some of the brackets. If you don't currently itemize, then you will get a tax cut for most brackets. I've run the numbers and it looks like I will pay more not less. I wrote up a simple spreadsheet. Has anyone else looked at those in the middle income who currently itemize? I told this last night to a GOP party official and he told me I was wrong. He also said that want to pass this quick Any info on how this bill affect Ohio Taxpayers who currently itemize?

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