State or federal? Preparers pick this season’s bigger headache

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Higher or lower marginal rates, revamped deductions and exemptions, SALT in some wounds: Federal filing changes got a lot of ink heading into this season. But the other half of most preparers’ workloads involves its own headaches of conformity and non-conformity to new federal tax law.

So which is more problematic: Federal returns or state returns?

“State returns may be [more] headaches since not all states are following the recent tax law change on the federal side,” said Twila Midwood, an Enrolled Agent at Advanced Tax Centre, in Rockledge, Florida.

“Fortunately, Florida doesn’t impose an individual income tax – but our office prepares returns for clients in other states. This is not to diminish the amount of headaches that are arising with the federal returns – both individual and business. Let’s just say it’s proving to be one giant headache this year no matter what type of return,” she said.

“The federal is the bigger headache because of all the changes because of tax reform, especially calculating the 199A deduction and the changes to itemized deductions on Schedule A,” said Brian Stoner, a CPA in Burbank, California. “The states either follow the fed’s lead or, like California, didn't conform much if any to the new tax changes, making it easier to review – even if a pain to reconcile with the fed.”

State forms, said EA Richard Ogg at The Master’s Tax & Financial Services, Santa Rosa, California: “Because California does not conform, many changes in federal should not be affecting California,” he said. “While the [state tax authorities] attempted to figure that out and then the software companies attempted to implement it, it’s already clear that there are scenarios that were not properly considered. We must figure out what the correct answer is almost without tools and then figure out how to cajole the software into giving an accurate answer.”

Barry Kleiman, a CPA and principal with Untracht Early in Florham Park, N.J., gives the nod to federal returns. “First, we’re tackling the biggest piece of tax reform legislation since 1986,” he said. “Despite talk of tax simplification, there are many new provisions, some of which are very convoluted and some of which we await more guidance. Then there’s the 1040 itself and getting acclimated to the new ‘postcard’ 1040 – which is then spread out over six supplemental schedules.”

‘Jumping’ among schedules

The devil’s in the details of prep this season – especially if the clients haven’t heard all details. “I haven’t had any headaches except trying to teach the taxpayers the new law,” said EA Janie Biddix of Advanced Tax Specialists, in Dalton, Georgia. “Some are not too happy with the change in Form 2106.”

“Federal, especially when going through the return with a client,” said Chris Hardy at Georgia-based Paramount Tax and Accounting. “What used to be easy to explain on a two-page 1040 now has us jumping among six schedules to explain a one-page 1040. So much for simplification.”

“Federal: From the new partnership audit rules to the business interest limitation applying to syndicates and a ton of other new issues, there are just so many changes to instruct clients about and help staff with,” said Nick Preusch, a CPA and tax manager with Top 100 Firm PBMares in Fredericksburg, Virginia.

Federal returns seem to present the bigger problem when trying to explain the big changes to clients. And that can mean eventually affecting clients where they feel it the most.

“The federal return preparation is requiring more time and effort when comparing the 2018 return to the 2017 to check for inconsistencies and accuracy, and when reviewing the 2018 return with the client – who’s also trying to understand the differences,” said Enrolled Agent Janet Sienicki in Schererville, Indiana. “Although I prepared my 2017 clients for potential changes resulting from the new tax law, my new clients have required additional time for withholding or estimate planning. The other challenges to the federal return preparation which were not present with the state are the late release of final rules regarding the TCJA.”

“Definitely federal,” said EA Terri Ryman of Southwest Tax & Accounting in Elkhart, Kansas. “With the new ‘postcard’ 1040, everything is a summary and refers to numerous attachments. So when I used to be able to check every line at a glance, now I have to refer to various schedules [to] try to figure out what’s what. I really hope that they overhaul this form before next tax season, or I for one will be increasing prices again.”

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Tax season Tax preparers Tax preparation Tax returns Tax reform State taxes