Calming clients’ biggest concerns about tax reform
The Tax Cuts and Jobs Act produced a lot of questions throughout the tax world. Most clients, however, probably just have one: Will I get to keep more money?
“I will have several clients that are upset by the loss of certain deductions and yet pleased with the lower tax bill,” said Morris Armstrong, an Enrolled Agent and registered investment advisor with Armstrong Financial Strategies, in Cheshire, Connecticut. “Clients have been told that many of the areas eliminated were areas abused by taxpayers, especially those with self-prepared returns.”
“In most cases it actually benefits them to have an increased standard deduction, and most taxpayers would have lost the miscellaneous deductions with this change anyway,” said Laurie Ziegler, an EA and managing member at Sass Accounting, Saukville, Wisconsin. “I’ll also remind them that in Wisconsin they’ll still benefit from itemized deductions if they did so before the new tax laws.”
‘Many won’t remember’
New brackets, new deductions, new limits on deductions: Communication has been and remains key with clients.
“We tried to have simple basic discussions with clients this past tax season to warn them about these changes, but many won’t remember those conversations,” said Twila Midwood, an EA at Advanced Tax Centre, in Rockledge, Florida. “We also sent newsletters out during the year advising clients to come in for tax planning. I believe many are going to see a significant fee increase for their return – they won’t be happy. We’ll spend more time holding conversations with clients explaining not only the return to them, but our fee increase as well.”
“Most clients have already consulted with us on SALT, as this was all over the news,” said Nicole Green, an EA at NGG Tax Group, in Easton, Maryland. “None of these clients is happy about the cap.”
“We’re not anticipating any unhappy clients. We tell our clients that we strategically navigate the tax law for them, and ensure they legally and morally pay the least amount of taxes as possible,” said Jake Alexander, an EA and owner of Alexander Financial in Largo, Florida.
The pass-through deduction remains a hot-button issue with many clients. “My doctors are extraordinarily unhappy about being precluded from the pass-through deduction. My lawyers who do trust administration solely (deemed not necessarily legal work) are extraordinarily confused and subsequently unhappy about whether they are entitled to the deduction,” said John Dundon, an EA and president of Taxpayer Advocacy Services in Englewood, Colorado.
Taxes and politics
“I already know that many are not happy about it, but in reality it probably won’t affect them in the big picture,” Ziegler said. “Most of my clients won’t be able to itemize for federal purposes any more, and the SALT limitation isn’t changing that.”
SALT seems the most emotional of clients’ issues with reform. President Trump’s tax reform created a $10,000 cap on state and local tax deductions – a slap for taxpayers in states that have high property taxes. Connecticut taxpayers, for example, will see an additional $2.8 billion federal income tax liability as a result of the SALT cap in 2018, the state’s estimates show.
Clients view the cap “through the lens of their party affiliation,” Armstrong said. “[Those] aligned with Democrats feel that it’s a slap in the face and don’t like it, despite that their own tax bill may be relatively unchanged or slightly lower. They view that they lost a deduction but fail to see the other benefits such as lower tax rates, expanded [Alternative Minimum Tax] thresholds or increased participation rates in the Child Tax Credit, among others.”
“They’ll complain because their SALT limitations exist,” he said. “That conversation will be a nod and a simple ‘Look at how much lower your overall bill is.’”