Wow, what a tax season! Trump’s Tax Cuts and Jobs Act (TCJA) impacted almost every individual and business tax return in some way. Even with all of the IRS information and models available, taxpayers and CPAs alike are still shaking their heads at how things turned out. While the BJM team catches its collective breath, I wanted to share the six main things we witnessed, experienced, and learned as we prepared thousands of 2018 tax forms for our clients.
Lessons learned from 2018 tax season
- More people owed money. Due to changes in the withholding tables, a lot of people withheld less money in 2018. That meant larger paychecks, but, when combined with major TCJA changes to tax deductions, also meant that many clients owed more money than previous years. They didn’t necessarily pay more taxes, but withheld too little.
- Fewer were able to itemize deductions. With the increased standard deduction combined with itemized deduction caps and eliminations, a significantly fewer number of clients were able to itemize. The elimination of miscellaneous deductions, like unreimbursed business expenses and broker fees, was especially noticeable – and painful.
- Throwing SALT into the wounds. The $10,000 cap on deductions for state and local taxes (SALT) impacted clients with higher income and larger homes. This also acted as a marriage penalty, with the same cap applied for married vs. individual filers. At least we don’t live in high-tax states like California and New York!
- Business deductions were a (complicated) blessing. The Qualified Business Income Deduction (QBID) allowed a 20% income deduction for most pass-through businesses, like partnerships and s-corps. Complex rules for applying this, as well as new restrictions on business interest expense deductions, increased the complexity of business tax form preparation.
- More than a postcard. One of the TCJA goals was to simplify the tax filing process. While the 1040 form was indeed simplified to a postcard-sized piece of paper, the IRS created six new schedules to report information now missing from the main 1040 form – not so simple.
- It’s not over yet. Thanks to the new tax laws and related complexity, delayed IRS forms and filing availability, and slow receipt of K-1s, BJM filed more extensions than ever before. We’ll quickly complete most of these filings but we weren’t able to immediately accommodate as many last-minute client requests as in previous years.
We need to meet – sooner rather than later!
The IRS is supposedly going to create a new W-4 form to more accurately determine how much of your 2019 paycheck you should be withholding for taxes. We’ve heard that the new form will be complicated, and may take as much time to complete as your tax returns, but let’s use your 2018 return as a starting point for 2019 tax planning.
The bottom line is that, based on 2018 tax returns, most individuals, families, and businesses should make some adjustment to their tax strategy for 2019. Let’s meet now to review your goals, so we can recommend the specific changes needed to put you in a better position next April 15.
Neal Bach, CPA