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New Tax Law and 2018 Planning


Yardley CPA

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I use the ATX planner for virtually all of my clients.  I think it's important to plan for the following year and try to avoid any surprises.  The packet I prepare includes a copy of the planner and there is a sheet that provides an overview of how it compares to the current year.  My clients know to contact me if there are any significant changes throughout the year.  Whether they contact me is another story.  :D 

As I use the planner, I've noted that the vast majority of clients are benefiting from the new tax plan.  I would say at least 80% are being impacted favorably.  That surprises me a little, I guess I shouldn't listen to all the doom and gloom media stories about how the plan will turn out to be more negative than positive.  Obviously, time will tell how much of an impact it will have on the deficit, but for many of my clients, it seems to be working in their favor. 

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I need to check on TaxWise and see if there is a planner like that. We have state tax here, and I think the worst event will be that most will choose to take the standard deduction on the federal, forcing a standard on the state.

That will stink.

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I've been running a similar presentation even for those clients that don't usually get planning. Drake has a comparison report available in the planner that can be presented to compare back to the actual 2017 return.  For just about everyone I've been hitting the highlights of the 10K SALT limitation on Sch A, the increased standard deduction, elimination of the personal exemptions, the change in tax, and that many are in a lower bracket.  For those whose income varies, I mark it hypothetical so that they can see the effect *as if* the same level of income and deductions should occur next year, and use it to inform them of changes they might expect to see on next year's return.  I'm also telling them to continue to keep receipts for itemizing since DE allows that even while using the standard for Federal, and our legislature will be meeting soon to work out the next year's budget because we operate on a 6/30 fiscal year.  It meant extra time with each client, but I do think they appreciated the comparison report as an easy visual aid to see the effects on their returns so there aren't big surprises at this time next year.

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ProSeries also has a tax planner, and I have used it more this year than ever.  I was not surprised that most people come off better under the new law - that had been my understanding from the media all along that the immediate benefit was for everyone.  I am waiting to see if the changes that benefit the lower income and middle class taxpayers remain in effect when they are set to expire.  Congress has a way of making changes like this continue rather than being known for raising taxes.  The only people I am noticing a negative or no impact for are those who itemize, and especially if they have large employee business expense deductions. 

But I am not sure how accurate this planner is this year, and I know it tells me nothing about the state.  Does anyone make a planner that includes state income tax effects?

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Another thing, for those where I'm not really doing full planning I've been eliminating the federal withholding entries altogether and taking the discussion only through the total tax line because I don't want to mislead anyone thinking that the bottom line bal due/refund is truly representative.  I tell those clients that I'll be happy to help them project out or adjust the withholding starting next month.

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I'd say only half or so of my clients are doing significantly better with the new law. 25% are about the same and 25% are paying more. The ones with large 2% deductions and high SALT deductions with no kids are getting hurt the worst.

I've also been adjusting the withholdings down substantially because we know that will happen with the new tables.

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But remember they adjusted the withholding tables so the bottom tax line may be better but if the withholding is a lot less they may owe next year.  they won't remember that received a bigger check each payday.  I do the planner and highlight the tax line and tell them to watch their withholding.

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I am seeing a good two-thirds or more of my clients will be better off. BUT.  I am also seeing MUCH lower withholdings from too many people who have not changed W-4's.  We are warning people to check that!  The cynical side of my brain says it's deliberate, so that next year people are angry about a tax CUT.  'Cuz yes, not one of them will remember $50/paycheck more in their pocket - they'll just see the balance due when they're used to getting refunds.

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17 hours ago, Catherine said:

I am seeing a good two-thirds or more of my clients will be better off. BUT.  I am also seeing MUCH lower withholdings from too many people who have not changed W-4's.  We are warning people to check that!  The cynical side of my brain says it's deliberate, so that next year people are angry about a tax CUT.  'Cuz yes, not one of them will remember $50/paycheck more in their pocket - they'll just see the balance due when they're used to getting refunds.

I think this is going to be a big problem next year.    Just what we need, more disgruntled clients.

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I've had maybe a dozen who are significantly better or worse, for most it makes very little difference. 
For us, the big problem is what will happen with the state.  MN starts with the federal taxable income and goes from there, but if they choose to conform to all the federal changes, most Minnesotans will see big jumps in state tax.  So they may choose to conform, but lower all the brackets, or not conform and design a new system.  Session ends in May, but they've done precious little so far.  So much fun trying to do estimated taxes for people with no clue what our tax system will look like in a couple months.

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Yeah, I did one this morning where the fed tax was 350 less but the state tax was 650 more. This mostly happens when they switch from itemizing to standard, because the state standard deduction is low. MD raised it a little bit, but decided to keep about 2/3 of the windfall the new tax law was creating.

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To Gail in VA. Have you noticed that when TP loses A on Fed for 2018 that the state tax goes up due to THE LOW STANDARD. Have you read anything that says VA may allow an either or for deductions. Else it may become a windfall for the state and a loser for our TP"s.

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9 hours ago, TAXMAN said:

To Gail in VA. Have you noticed that when TP loses A on Fed for 2018 that the state tax goes up due to THE LOW STANDARD. Have you read anything that says VA may allow an either or for deductions. Else it may become a windfall for the state and a loser for our TP"s.

I have not heard of any changes yet for VA standard deduction.  And yes this will be a windfall for VA if they don't do something.  I think they will do something but I have no idea what or when - they usual don't make decisions about conformity until late January since they only meet annually beginning in mid-January.  So while we may hear rhetoric between now and then we won't know officially until next year what if anything they plan to do about the tax changes.  Unless they have a special session.

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CA allows you to itemize even if the federal standard is taken, as long as the schedule A is completed. So no much less work for me. I’m seeing big savings in my people that are hit hard by AMT. but then again, the 200-500k range isn’t exactly middle class. 

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