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SaraEA

Coming tax changes

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I know that many of us actively ignore proposed tax changes and wait until the actual tax law changes.  Right now both houses of congress have passed tax bills that will now go to conference committee to reconcile differences and then a unified bill will be voted on by the full House and Senate.  The odds of it passing there are high IMO, because there is pressure to present this big "Christmas present" to taxpayers.  This is not a present at all to those of us who will not have time to give our clients sound tax advice for THIS year.

I got to thinking about this when considering my own tax situation.  The two current bills have some identical and similar parts that will undoubtedly become part of the final bill.  The standard deduction is nearly doubled, no deduction for state and local income taxes, either no or capped deduction for property taxes, the elimination of exemptions.  Since it is likely I will no longer itemize, I decided it will be best for me to pay my property taxes that are due in Jan by the end of this year, and I might as well pay my final state ES in Dec too.  Then it hit me that many of clients might benefit from the same plan.  Before offering that advice, I'd have to check if paying these items early would throw them into AMT, if they have enough other deductions to continue itemizing, etc. To give sound advice would mean going through all of their returns--impossible in the short time we'll have once the bill passes and we digest it.  I am angry that congress once again waits until the last minute when it is too late for us to help our clients (their constituents).  End of rant.

Does anyone think we should nonetheless advise all clients to just pay their property and ES taxes in December, on the assumption it can't hurt and might help?

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You have to give advice on the current law, not on predictions. I know you want to go the extra mile with your clients but in this situation you will have to blame Congress for the first time (right?).  After the law is passed, if you client calls you, then you can advice them accordingly.

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"... actively ignore proposed tax changes and wait until the actual tax law changes..."

If the items you think will surely be included, get tossed out, then where does that put you in the eyes of your clients?

All talk about the upcoming tax law changes is just political gossip and media "fake news" fodder.

Until the bill has Presidential ink on it, I am NOT considering any changes, and do not play "what if?"

 

crystal-ball.jpg

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Sara, I would make the same recommendations to my clients irrespective of whether the tax law is changed.  Even if not changed, it still increases deductions for the current year, since individuals are on a cash basis.  As noted, however, make sure this strategy is not negated by the AMT.

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And the dilemma is whether those accelerated expenses might be more beneficial in the year they are being stolen from. Tax planning from my perspective is not a one year item. I try to evaluate what affect actions will have on as many years as the plan will affect.

i agree with those that state that we do not have new law until the ink is dry. Accordingly there is not much we can do tax planning wise beyond which we KNOW the law to be.  I have been in this business long enough to have seen some very strange things come out of Washington, both good and bad, in the eleventh hour. And I have seen enough times where NOTHING was done in the eleventh hour.  We will not know until we know.

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If a client called me today about whether or not to pay property tax in 2017, and it was one of my clients that can actually itemize,  I'd tell them I'd probably pay it now if there is uncertainty about the benefit in deducting it next year.  And there are always uncertainties about next year.   A bird in the hand is worth two in the bush.  Plus I have been around long enough to know that they are calling me because they want me to tell them to pay it now. 

I realize I'm lucky as our property taxes are low,  and I only deal with AMT once in a blue moon. 

As far as taking it upon myself to call THEM and give advice?  No.  Not even if the law is changed tomorrow.  I can't think about everything for 350 families.  It is what it is. 

I got amused yesterday at a local pro who posted on FaceBook that it looked like he and his wife would get a tax cut, but some people with kids would not.  He does a lot of unnecessary talking.  I don't know what he hoped to accomplish there, but nobody congratulated him, and immediately people started asking, "What about me?"  After two or three replies of, "It's too early to say for sure," he removed the post.  Um...

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43 minutes ago, RitaB said:

I got amused yesterday at a local pro who posted on FaceBook that it looked like he and his wife would get a tax cut, but some people with kids would not.  He does a lot of unnecessary talking.  I don't know what he hoped to accomplish there, but nobody congratulated him, and immediately people started asking, "What about me?"  After two or three replies of, "It's too early to say for sure," he removed the post.  Um...

Yeah, I find it difficult enough to do tax planning with the information my clients give me even when we have an appointment to go over their information and there is no major pending legislation.  I am sure as heck not going to start giving planning advice on FaceBook.  And especially not in anticipation of legislation that has not been signed into law.  My crystal ball and tarot cards and psychic abilities combined are not that good.  Maybe if I had rune stones too......

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43 minutes ago, Gail in Virginia said:

I am sure as heck not going to start giving planning advice on FaceBook. 

Apparently he didn't want to either!  LOL.  I really have no idea what he was thinking posting that.  He's not a rookie, actually a CPA in business longer than me, a dinosaur.   I could see posting it on a tax forum, but your personal FB page?  I was sitting there thinking, "Your post is blowing up in 3, 2, 1..."  :spaz:

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Gail, it is a long running (makes our kids cringe) joke in my house that I always wonder, out loud, why a close to me physic storefront needs to post hours and have a neon open sign.  My figuring is the signs are telling me to look elsewhere, since the location in question cannot figure out when I will be coming in... which to date, is never.

---

I am in the "it ain't nothing until it is something" camp.  Just lost a customer who insisted they had a need to prepare paychecks for the first two months of 2018, for their clients with salaried employees, since their checks are "always the same".  They demanded it was a bug, not being able to calculate 2018 already - but would probably be the first in line to attack, should I do so and guess wrong.

Experience tells me there will likely be some sort of decision just before Christmas (politically beneficial), but it also tells me there very well could be a "keep using 2017 calculations 'till we make a decision" Christmas present, as we have seen before.  The interesting part is how states will handle any "new" movement in the federal calculations - the states which use the federal figure as their own standard deduction amount, and the states which use the calculated FWH in their own calculations.  Could be some new mid year or last minute state changes, at least from the states whose revenue stream would be cut by an unexpected change in FWH calculations.

 

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The real trick for me is going to be figuring out how to advise my client who are going to be on the cusp of itemizing in 2018.   With the larger std deduction, loss of state income taxes, only property taxes deductible, no more job expense or miscellaneous deductions, and medical expenses probably going away, I think about 60% of my clients who itemize now will not in 2018. 

Are job related expenses going away?  I have a couple salesmen who use their own vehicle and have an office in the home and telecommuters with offices in the home.  Are they totally screwed?  (I know, we will not know this until the final bill passes....just thinking out loud...so don't kick me Jack).

Tom
Modesto, CA

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If you're in a state with an income tax that requires you to itemize for federal if you want to itemize for state, and also has a low state standard deduction (I'm looking at you Maryland!), you may find yourself taking itemized deductions on federal even though they're lower than the standard deduction because you can save more in state taxes than it costs you in federal taxes.

I've been doing a lot of that for years. I also play with taking a lower sales tax amount instead of income tax itemized deduction in various situations. Sometimes it results in a higher tax but the state income tax refund is not taxable next year and saves taxes overall taking the 2 years together. Did someone say 'tax simplification'?

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As frustrated as I am, frustration = lifetime income potential...

Personally, what to do in the next few weeks is clear, and fortunately, easy.  I do not have others relying on my advice for pay...  For my customers, the daily issue is WHEN will the politicians make their decisions, so they can stop worrying about what to do for their first payroll for 2018.

I did see the first (at least in the news feeds I read) mention of the federal "changes" causing problems for a number of states.  I warned my customers of this already...

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Yeah they better advise everyone to fill out a new W4 with fewer allowances, or a lot of folks are going to be facing a huge balance due when they file their 2018 tax returns.

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1 minute ago, Abby Normal said:

Yeah they better advise everyone to fill out a new W4 with fewer allowances, or a lot of folks are going to be facing a huge balance due when they file their 2018 tax returns.

I advise my customers NEVER to give tax advice to their employees (even if they are in the tax prep business, and the employee would want to be their client, I would still say stay clear of becoming their employee's tax expert).

Given what has been published, not changing a W4 might lead to federal over withholding rather than under (less exempt wages and less tax rate).  Certain states are more of a worry, depending on how they incorporated the federal calculations into their own. Of course, the personal situation (itemize or not for instance) alters this greatly.

 

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