There’s a lot of information out there about the new tax bill. But not all of it is true. Here are 9 myths to look out for and the truth behind them. Be sure to share these with your clients!
Taxes will be so simple, you will be able to file on a postcard.
The postcard idea originated with House Speaker Paul Ryan and continues to circulate. The thinking behind it was that by doubling the standard deduction, reducing the amount of tax brackets, and eliminating the need to itemize, that the tax code would be simplified thus making the filing process easier for individual taxpayers. In reality, the final bill still has seven tax brackets and is extremely complex. It layers new tax complexities on businesses and has a number of new regulations. Only those who understand tax law should try to tackle this bill. That means you, as a tax preparer should be ready!
MYTH # 2
I don’t need to worry about the new laws now, since they are not applicable to this current tax filing season.
Don’t put off learning the new law. It will be essential this tax season to know what the changes are so you can help your clients plan for 2018. Many changes have to be made by the tax filing deadline. There are things like IRA contributions, W4 changes, and business entity classification changes that will need to be made sooner rather than later to have the greatest impact on 2018.
MYTH # 3
The penalty for healthcare has been eliminated so clients don’t need to worry about a penalty if they don’t have health insurance.
Actually, the individual mandate for healthcare is not eliminated until 2019. Current rules still apply to 2017 and 2018.
MYTH # 4
Teachers can no longer deduct educator expenses.
It was on the chopping block, but was retained with the current amount of $250 per educator. It will however, limit the ability to deduct more than the $250 as an unreimbursed expense in 2018 as the unreimbursed business expenses have been eliminated for 2018.
MYTH # 5
Clients should have pre-paid their 2018 taxes in 2017 so the $10,000 cap on taxes in 2018 would not have a large impact on my 2018 tax return.
Local counties in many high tax states were slammed after Christmas with many people making tax payments before the year end. However, only certain people will be eligible to deduct them. In order for taxes to be deductible in 2017, they must be assessed and paid in 2017 (even if for tax year 2018). Those that are paid prior to receiving an assessment will not be deductible on 2017 returns.
MYTH # 6
There is no point tracking medical expenses for those under the age of 65 since the AGI limit is 10%.
Even though there still may not be a point in tracking medical expenses, the AGI limit has been reduced back to 7.5% of AGI for everyone for 2017 and 2018.
MYTH # 7
They haven’t changed the W4 to adjust to the 2018 tax law, so I’m still going to pay too many taxes from my check this year.
The President has asked payroll providers to adjust withholding tables so that workers will see more in their paychecks as early as February with no required changes from the employee. Employees can make changes as well, but it’s almost too soon to know what to expect from tax reform changes. The good news is that paying too much will result in a refund.
MYTH # 8
With the doubling of the standard deduction, taxpayers will no longer itemize, so their tax returns will be simple and they won’t need you.
Eliminating itemized deductions will not necessarily make tax returns simpler. Many taxpayers must still include other complicated schedules and statements with their tax returns and they have other tax complexities. The assistance of a tax professional may still be required to ensure that the taxpayer pays the least legitimate tax.
MYTH # 9
This tax stuff is too complicated right now, I’ll just file an extension and deal with it later.
Urge your clients that this is not the year to wait. Even though there are likely to be technical corrections to fix drafting errors and loopholes. Let your your clients know that you we be monitoring all changes and that you have them covered.