Tax Attic: TCJA changes

Two days of new tax law in the month of May is two long days. However, no matter what any of us does for a living, we all take professional information when we can get it and last week was a golden opportunity for me to learn about some of the perceived points of the Tax Cuts and Job Act. I say “perceived” because, like several of the last major tax laws that Congress has passed, the law itself leaves a lot to be explained and clarified. The Internal Revenue Service is busy doing the explaining while the Congressional technical writers are doing the clarifying. Unfortunately for both departments, it appears that January 1, 2019 will get here before they are finished explaining and clarifying. The vast number of changes that are taking place right now just boggles the mind. The magnitude of how the changes affect every taxpayer is also mind-boggling. That is not a misprint. The Tax Cuts and Job Act (TCJA) will affect every taxpayer. These changes will affect the amount of tax calculated on the tax return that is filed next tax season and will directly affect the tax due or the refund of every taxpayer.

Let’s take a look at some of these changes. First, 100% of taxpayers who file a tax return will no longer receive an exemption. Before the TCJA, each exemption was worth a deduction of $4,050. That deduction is eliminated. However, since many deductions, filing status, and credits are based on claiming an exemption or exemptions, the number of exemptions will still be an important part of the tax return. For example, in order to file using the head of household filing status, the filer has to maintain a household for him or herself and a dependent that must be identified on the tax return. Just because the exemption amount is zero, that doesn’t mean that exemptions won’t count. In addition, most states, like Michigan, still allow a deduction for each exemption. I’m glad to say that Michigan didn’t change and has no intention of changing its law. Second, every taxpayer’s standard deduction will be increased as an offset to the exemption deduction loss. The amount has basically been doubled. This doubling will not completely offset the loss of the exemption amount for every taxpayer so there were some additional compensations added to even up the tax game, so to speak. The biggest compensation was change number three. Third, the child tax credit was increased from $1,000 to $2,000 with up to $1,400 of that amount fully refundable. Of course, claiming the child tax credit is also based on the claiming of dependents. That dependent or those dependents will have to be listed on the tax return even though no exemption amount will be tied to the dependent(s). In addition to the increased child tax credit, a $500 non-refundable credit was created for each dependent listed on the return that doesn’t qualify for the regular child tax credit. The listing of dependents is now even more important than it was before. In addition, the amount of income that can be earned before the child tax credit is phased out has been increased substantially from $110,000 up to $400,000 for joint filers and $200,000 for all other filers.

There are literally hundreds of other changes made by Congress in the Tax Cuts and Job Act. Over the summer, I will continue going over what those changes are. Of course, there are still the normal incredible number of changes, IRS revenue rulings and proclamations, and tax court rulings that tend to change the ground rules we all operate under. These are truly interesting times in the tax preparation business. As Charles Dickens wrote in his 1859 novel, A Tale of Two Cities, “It was the best of times; it was the worst of times; it was the age of wisdom; it was the age of foolishness”. He could have written that yesterday and it would be just as applicable. 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