Since last week’s article was the last one of the 2018 tax season, by default, then this article is the first one of what all tax preparers in the United States call the “off season”. Every business has its’ ebbs and flows; its’ slow times when the phone doesn’t ring and it’s crazy times when every line of the business lights up at the same time; its’ time when there are more employees in the store than customers and the time when the line to order is out the door. The tax business is just a little more defined than most businesses. It isn’t that there are not still millions of tax returns that remain to be filed. Remember from last week’s article, I noted that approximately 20% of all returns are filed after April 15 or in this year’s case, April 17. There are also returns that have a due date after April 17. Non-profit entities such as charities like North Kent Connect; social clubs such as the American Legion; quasi-business entities such as the Rockford Chamber of Commerce and charitable foundations such as the Rotary Foundation all have a due date of May 15. Many regular corporations, for business cycle reasons, have chosen a fiscal year that ends at the end of its business cycle, such as June 30, instead of December 31. Those returns are still due on the 15th day of the 4th month following the end of its year. The bottom line is tax preparers can still find plenty of returns to file from April 18 through December 31 when the whole merry-go-round starts again.
The big elephant in today’s closet is exactly how the 2017 Tax Cuts and Job Act, Public Law 115-97, that Congress passed on December 22, 2017, will affect each of us. It has enough goodies sprinkled throughout it’s 1000 plus pages that it’s easy to see that almost everyone will be affected. Let’s quickly review a few of the main provisions. First, tax brackets, except for the 35% bracket, will be reduced by 3%. The 15% bracket on January 1, 2018 became the 12% tax bracket and the 25% bracket became the 22% bracket and so on. Second, the standard deduction for all filers has basically been doubled. The joint filing standard deduction went from $12,700 up to $24,000. The single standard deduction went from $6,350 up to $12,000 and so on. In addition, many items that were deductible in 2017 such as employee business expenses and investment-type fees will not be deductible in 2018. Third, the Exemption amount allowable has been repealed. On 2017 returns, $4,050 was allowed per exemption. In 2018, that amount will be $0. Fourth, the Child Tax Credit is increased from $1,000 up to $2,000 with no more $1,400 being refundable. That’s big, but the biggest provision is the one that dramatically increased the income phase-out up to $200,000 for singles and $400,000 for joint filers. More taxpayers than ever will qualify for a larger credit. Fifth, a 20% deduction will be allowed on the profits of Schedule C’s and business income from Sub S Corporations and Partnerships. The deduction will be allowed against taxable income and is another very important provision. Taken together, a taxpayer’s coming 2018 tax return may look nothing like the recently completed 2017 tax return. Preliminary projections are that upwards of 30 million taxpayers who itemized for 2017 will not itemize in 2018. No itemizing and no exemption amount will make many returns look like they are candidates for a postcard type of return. Others will look different because of the 20% deduction. For taxpayers who pay their tax liability by the payment of estimated tax, we will most likely be talking to those taxpayers through-out the year to determine how the Tax Cut and Job Act affects those estimated tax payments. I have a feeling it’s going to be a busy off-season. 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 www.actiontaxservice.com