Why You Need Your Tax Professional More Than Ever This Tax Season - Even If It Costs More
As Previously Published on Forbes.com
There is an old project management saying - “Fast, good or cheap. Pick two”. While this can apply to many aspects of life, it is quite true in the tax world. From Turbo Tax to HR Block to the Big Four, there are many different types of tax preparation and planning services – all tailored to different types of taxpayers.
When Congress passed The Tax Cuts and Jobs Act (TCJA) in December of 2017, there were many commentators who opined that tax preparation would become simple – or in the parlance of the above adage – fast and cheap. Many tax professionals shuddered at the potential impact on their industry, fearing that the art and science of tax planning and preparation could become archaic.
But in the fourteen months since the bill was passed, tax professionals have realized that’s not the case.
“The TCJA is the biggest tax law change since the Tax Reform Act of 1986. Because the bill was crafted quickly and without much detail, a tax professional's help would be beneficial,” says Lynn Freer, EA and President of Spidell Publishing, a leading tax educator. “There are many new tax planning and reduction opportunities that are not available in tax software.”
As Americans face their first tax season under the new law, they may need their tax professional more than ever.
Calming Anxiety, Leading the Way
When the TCJA was passed, tax professionals immediately started reaching out to clients to help provide clarity and start planning for the new law. In fact, within a month of the TCJA’s passage, the American Institute of CPAs (AICPA) found in their Personal Financial Planning Trends Survey that 67% of their CPA Financial Planners had already discussed the impact of the tax reform with their clients. As a result, the taxpayers involved were more optimistic about the new law.
It’s important to note that not just high earners or those with complex business entities need guidance. The AICPA determined that some of the key planning issues taxpayers wanted guidance on were straightforward. That’s not a surprise to tax experts.
“Even some of the simpler, ‘plain vanilla’ tax law updates need careful scrutiny and spreadsheet analysis in order to get the best tax outcome,” explains Harvey Bezozi, CPA, CFP and Founder of YourFinancialWizard.com.
By immediately addressing them, tax professionals have helped taxpayers better manage their financial picture and alleviate anxiety.
It's Not So Simple
But it’s not just anxiety that has to be addressed. There is a misconception that the TCJA has simplified the tax process. Part of this stems from commentary during the debate on the new law, when the idea of filing your tax return on a postcard gained traction. As a result, many Americans believe that if a tax return is simpler under the new law, then it will cost less to prepare it. In fact, many taxpayers may find the cost of tax preparation will increase. While the Form 1040 has changed, it hasn’t made it simpler and that comes with a cost.
“Tax preparation fees, especially for taxpayers with businesses and investments will increase,” says Freer. “The new tax laws are very complex and often vaguely written, which will cause additional time and research to prepare the returns. For many taxpayers the new “Postcard” comes with six additional schedules that may need to be included with the postcard. Taxpayers who have a business, an investment in a partnership, LLC, or S corporation will have additional complexities.”
This is where tax professionals need to be transparent and direct in explaining to their clients the challenges faced under the new law.
One of the primary reasons for increased tax preparation costs is the issue of non-conformity. While some states have agreed to comply with the federal changes, that isn’t true across the country. For taxpayers who are in states that are not conformity with the new TCJA, their tax professional will likely be doing more work. While the federal return might be simpler, the state return will not have changed, thus requiring the tax professional to prepare two separate returns.
California is one such example.
“California conforms to only a few of the TCJA provisions,” explains Freer. “And, even if we have conformity to TCJA, we believe California will not conform to most of the business provisions, including depreciation. California has never conformed to bonus depreciation and limits Sec. 17j9 expensing to $25,000 for all businesses except C corporations, which are limited to $2,000.”
Even in states that have chosen to conform to the TCJA, certain changes are complicated.
“The TCJA includes many very sophisticated tax law modifications,” says Bezozi. “For some of the more complex provisions, even the IRS has been confused about how to apply them to taxpayers, specifically the Section 199A Qualified Business Income Deduction for pass-through entities and their owners.”
Given these two issues, taxpayers risk missing opportunities if they prepare their own return, and off-the-shelf tax software might not provide the necessary guidance. As a result, taxpayers should avoid being “pound wise and penny foolish.”
Getting More Value for Your Fee
Tax planning is an ongoing conversation that should occur throughout the year. Rather than viewing the TCJA as a reason to shed an advisor, taxpayers should see it as a way to engage their tax professional at a deeper level, to uncover potential opportunities and get better planning that will have a ripple effect through all of their finances.
“It's always best to consult with experts when dealing with any sort of complex financial matter,” says Bezozi. “The new tax law is very confusing, and the costs associated with hiring a knowledgeable tax professional are generally more than offset by the tax savings enjoyed as a result their expertise.”
And that is good tax advice.