Pressure center: What clients say about tax reform

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As Congress prepares to vote on the Tax Cuts and Jobs Act of 2017, practitioners are reporting that their individual clients have mixed feelings about the bill – particularly those in the middle class.

“Many are convinced that what is good for business will ultimately be taken out of the pockets of the middle class,” said Jeffrey Gentner of JR Gentner EA and Associates, in Williamsville, N.Y. “Others feel that it is time for reform. They are worried about the loss of deductions, especially if they have a large mortgage and are paying very high taxes. Seniors are worried about medical deductions, especially those who are paying the high cost of nursing home care.”

The majority of the client base of Enrolled Agent Laurie Ziegler at Sass Accounting, in Saukville, Wis., is middle-class. “I’m getting calls or e-mails almost daily,” she said. “They’re concerned about how any changes will affect them and will they take place. Many are already trying to crunch the numbers – and coming to the conclusion that it’s going to hurt.”

A recent survey for The New York Times revealed that only a third of Americans think their taxes will go down in 2018 if the tax reform bill passes this week as widely expected.

“I figure ‘middle class’ is about $75,000 to $200,000, at least in California, and most feel that with the loss of personal exemptions, mortgage interest reduction (potentially), the real estate tax limitation to $10,000 … and the loss of state income taxes and miscellaneous itemized deductions, they’re going to pay a lot more in taxes,” said Brian Stoner, a CPA in Burbank, Calif.

Yuliya Harvey, an EA in Lake Havasu City, Ariz., has seen a mix of responses. “Some of my clients hoped for simpler tax brackets and less deductions due to the burden of keeping, collecting and sorting through the records,” Harvey said. “All of my high-income clients see no change and hope that someday they will not be punished for being successful in their career. Most of my retired clients hope for the increased standard deduction (with the age adjustment, of course) mostly because they don’t take advantage of the medical and mortgage interest deductions.”

“Between the deductions that might be eliminated and the loss of personal exemptions, they wonder if there will be a drastic change in their tax situations,” said Terri Ryman, an EA at Southwest Tax & Accounting, in Elkhart, Kan. “I can’t tell them much to relieve their anxieties yet. But most agree that reform is way past due.”

Who will gain?

The class-by-class benefits of this reform plan have garnered widespread coverage – and generated strong reactions. A recent analysis by The Tax Policy Center, for example, showed that Senate version of the Tax Cuts and Jobs Act as passed December 2 would reduce taxes on average for all income groups in both 2019 and 2025, but also that higher-income households would generally receive larger average tax cuts as a percentage of after-tax income.

On average in 2027, Tax Policy Center estimates showed, taxes would change little for lower- and middle-income groups and decrease for higher-income groups.

“Many [middle-class clients] are hearing only pieces, and with talk around the cooler at the office a lot of misinformation is being spread,” said Kerry Freeman, an EA at Freeman Income Tax Service in Anthem, Ariz. “I often have to tell my clients to wait for the final bill and then we can successfully talk about how it affects them and what to do going forward.”

“Most see the proposed … changes as having a negative impact on them. They see the limitations on Schedule A items as the biggest impact to them. Most have not really had much of a comment on the tax rate structure,” said Twila Midwood, an EA at Advanced Tax Centre, in Rockledge, Fla.

‘Results have varied’

Not everyone is voicing concerns. “My clients are remarkably silent on the tax bill,” said Morris Armstrong, an EA and registered investment advisor at Armstrong Financial Strategies, in Cheshire, Conn. “I’ve reached out to a few and suggested that based on proposals they won’t be impacted one way or the other to any degree. What is ironic, though, is that my highest-net-worth client thinks she should pay less and that the rich should pay more. This really puts into perspective what is ‘rich’ and ‘middle class.’”

“If a new law comes into effect by this year end, our office will take the position that during tax time it may still be too early to try and prepare for 2018 tax planning,” Midwood said. “It’s a possibility that many technical corrections could come about during this filing season in regards to any new laws. We will advise clients whom we think may be materially affected by the changes to schedule appointments after May to determine any impact.”

Gentner has also done calculations to try to show clients reform’s potential impact their tax situation. “Results have varied,” he said. “Some are better off, some not so much.”

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