Clients are confused about reform’s effects this season

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It’s been almost a generation since a single digit in the number of the year made such a difference in clients’ tax questions – and worries.

“Clients are asking if the reform changes will affect their 2017 return,” said Brian Thompson, a CPA with Bailey & Thompson Tax & Accounting in Little Rock, Ark. “After quickly clarifying that just about all of the changes are for 2018, we inevitably spend several minutes discussing how 2018 will change for them.”

A recent survey by prep software provider TaxSlayer found that 57 percent of Americans are not confident in their understanding of the U.S. Tax Code. And that was before the Tax Cuts and Jobs Act.

“I’m mainly answering client questions about next year,” Thompson said. “Once clients start to come in for their tax appointments, I’ll provide them with a tax projection worksheet showing the changes for 2018.”

“Some clients believe since the changes take effect in 2018 and we’re doing the 2017 returns in 2018, that the returns are being done under the new laws,” said Enrolled Agent Laurie Ziegler at Sass Accounting, in Saukville, Wis. “There actually are a couple of changes that affect this year, like the lower floor for deductible medical expenses. For those clients interested, I’ll go through an analysis of what their 2017 scenario would look like under the 2018 tax laws, as well as doing projections for what will change in 2018 and how it will affect their tax liability.

“This is something I have offered every year for the 25 years I have been in business,” Ziegler added. “What makes it different this time around are the vast changes to the Tax Code.”

Said New York EA Phyllis Jo Kubey, “The big question on everyone’s mind is of course: ‘Will I do better or worse on my 2018 return, with the new tax law?’”

‘Sigh of relief’

Even before he’d met face to face with clients for 2017 tax prep, “I received many phone calls and I can tell that most taxpayers think that the Tax Cuts and Jobs Act is going to affect their 2017 returns,” said Jeffrey Gentner, an EA in Amherst, N.Y. “I can actually hear a sigh of relief when I tell them that things have not changed that much for the 2017 return. I assure them that we’ll discuss 2018 when they come for their prep appointment over the next few months.”

Gentner reported “some interesting conversations” with clients who’ve been taking business-related deductions on Schedule A, “mostly advising them to initiate a discussion with their employer about using an accountable plan for these deductions going forward,” he said. “Otherwise, they’ll be at a loss for these expenses since things like business-related travel, license and regulatory fees, required medical tests, unreimbursed continuing education, investment fees and expenses will no longer be deductible.”

Morris Armstrong, an EA and registered investment advisor with Armstrong Financial Strategies, in Cheshire, Conn., spent time advising clients of the steps to be taken last year to have maximum impact on the 2017 return. Despite his being proactive, Armstrong is “sure that there is at least one client who thinks that they won’t be penalized for not having medical insurance because the mandate ends Dec. 31, 2108,” he said.

‘Educate and re-educate’

Communication has been key, preparers said, to informing clients when reform’s real changes begin. Kubey has been “inundating” clients with informational newsletters since the first announcement of the House reform bill. “I don’t think they’ve ever heard so much from me in such a short period. It’s been an opportunity to educate and re-educate my clients about the flow of their tax return and what this all means for them,” said Kubey, who did realize after sending her first e-mail about the House bill, “that my clients were confused about when these changes would go into effect. I made sure to clarify that in subsequent communication, and I’ll be looking ahead to do a lot of 2018 planning as I am working with their 2017 information.”

EA Joel Grandon in Marion, Iowa, has developed a chart showing changes comparing and contrasting the old law to new. “This seems to be a good tool to hand out to our clients,” he said.

Some tools are proving valuable for future work with clients. “I think there are clients that believe that the ACA penalty is gone,” said EA Terri Ryman at Southwest Tax & Accounting, in Elkhart, Kan. “My software has a new form being calculated that gives a quick computation of how the 2017 return would’ve turned out if the TCJA had passed and affected 2017. It’s a very enlightening form, and I believe it’ll show clients how the new law will impact them next year. And I think that it’ll assist me in computing estimated tax payments.”

“Our software has included a worksheet that provides a comparison of the potential impact (with and without the TCJA changes), which will be included with each return,” said Twila Midwood, an EA at Advanced Tax Centre in Rockledge, Fla. “We will [also] be advising clients that due to the complexity, we’ll be happy to schedule a TCJA tax-planning appointment after May.”

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Tax reform Trump tax plan Tax season Tax planning Tax preparation Enrolled agents