Tax Attic: “What if” questions about the Tax Cuts and Job Act of 2017

Welcome to the new year of 2018! No doubt, it’s going to be an interesting one for those of us in the tax preparation business. Whenever Congress summons up the intestinal fortitude, right or wrong, to pass a major tax bill like the 1000 plus page Tax Cuts and Job Act of 2017, it adds a wrinkle or two to our professional life. We have to look back to 2010 to encounter the last really major tax bill passed by Congress. In March of that year, Congress passed the Patient Care and Affordable Care Act also known as Obamacare. I would say that bill qualifies as affecting, directly or indirectly, just about every taxpayer in the United States. Because of the number of wide-ranging provisions, the Tax Cuts and Job Act also has the capacity to affect all taxpayers. Every return scenario that we have come up with has been affected but, without a doubt, there will be some minute percentage that will come up with the same answer for 2017 and 2018. It will happen. After all, eventually someone does win the Super Ball Lottery and eventually even the Lions will win the Super Bowl.

How do tax professionals get ready to prepare returns using the current 2017 rules while also being able to accurately answer the questions concerning the 2018 new rules? Most of us have just received our 2017 tax program software and are diligently working on getting that program installed and operational. We are practicing on sample returns to ensure the software is working properly. I am in the minority of all tax professionals still working that started out preparing tax returns by hand and like to think I can still look at a return and determine if it “looks right” based on my pre-software, by-hand, experience. Simultaneously, we have all been diligently studying the 2018 rules since the new law was passed. Webinars are offered to us daily. Emails with several page summaries are also received frequently. The in-person seminar business provides us with many opportunities to discuss the new law and ask questions. Of course, the actual text of the bill is available on-line but it does make for a pretty boring read. We just have to remember that the new tax law affects next year’s tax returns and not the returns we will be completing in the next three and one-half months. We will be answering a tremendous amount of questions about next year while preparing this year’s tax return. These are the “what if” questions that everyone will have. The more we know about the Tax Cuts and Job Act of 2017, the better job we can do to accurately answer those questions. Allow me to state a couple of those questions and try to answer them in a general sense.

First, “Do I still get to claim my children In 2018 since there is no exemption amount allowed?” Yes, you will still list and claim your children on your 2018 tax return. There are several credits and deductions available based on claiming those children. Up to $2,000 of credit per child claimed will be available for children under the age of 17. Up to $500 credit will be available for children over 17. Education credits are available for children in college. State and city exemption amounts are still available and those amounts are normally tied to claiming the exemption on the federal return. So, yes, we will still be listing those exemptions on the federal return for reasons other than the federal exemption amount.

Second, “Will I be hurt by not being able to itemize in 2018?” The standard deductions were basically doubled from 2017 to 2018. Because of that doubling, the projection is that up to 30 million tax preparers who itemized in 2017 won’t have enough deductions to itemize in 2018. In addition, the tax rates were all cut by 2-3%, with the exception that the 35% tax rate remains the same. Taken these two factors together, many people will see a lower amount of income that will be taxed at a lower rate and that usually means a lower tax bill. Of course, there are other factors could cause some taxpayers to have more money taxed under the 2018 rules and, for them, that could mean a higher tax bill.

Third, “I own a small business. All I hear is that big business will get a tax cut from 38% to 21%. Does this bill have provisions in it to help me or do they hurt me?” Now that’s a great question and that’s what we will look at in next week’s article. There are quite a number of provisions in the tax reform bill that will benefit corporations of all sizes but also quite a few that specifically benefit small businesses. This is Jerry Coon signing off.

Jerry Coon is an Enrolled Agent.

He owns Action Tax Service on Northland Dr in Rockford.

Contact Jerry at