Thursday, December 27, 2018
THE YEAR IN TAXES 2018
2018 was truly another terrible year for America and the world – with dangerous, deplorable, despicable, incompetent, ignorant, and mentally unstable malignant narcissist Trump still in the White House. But this post is about taxes.
The big tax story of 2017 was the year-end passage of the “Tax Cuts and Jobs Act” (officially “An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018”), more appropriately known as the GOP Tax Act. The GOP Tax Act did not affect 2017 returns filed in 2018, with minor exceptions (specifically returning the AGI exclusion threshold for medical expense to 7½%), but it certainly dominated tax preparer CPE in 2018. I attended 4 separate events throughout the year, from May to November, that were either totally or partially devoted to the new tax laws – two from the National Association of Tax Professionals, one from the NJ chapter of NATP, and one from a new, for me, independent commercial CPE provider. For the most part the presentations were redundant, as few new developments in the official interpretation and application of the law were released during the year.
Three things continued to be reinforced by the GOP Tax Act presentations I attended -
(1) There is still a lot we don’t know yet about how many of the provisions of the Act will be interpreted and implemented.
(2) Because the Act was basically written overnight, the wording of the law is often defective, confusing and unclear. “Technical corrections” legislation is clearly needed.
(3) It is very obvious that those who actually write tax law and the members of Congress who vote on it have absolutely no concept of the practical implementation of the tax legislation they write and pass, or of the actual preparation of tax returns.
I published a book on THE GOP TAX ACT AND THE NEW 1040.
As for the 2018 tax filing season, like the 2017 filing season, it ran smoothly. This season I got an answer to the question posed by the Beatles decades ago (at least for me) – my 1040 clients still needed me, and some of them still fed me, now that I was 64!
The IRS announced it would begin accepting and processing 2017 tax returns on January 29th (later than last year’s January 23rd start date), but, as always, the season officially began for me on February 1st. I ended the season on April 16th (the day before this year’s filing deadline of April 17 – I never work on the actual last day), with only 26 GDEs (by now I expect you know what this stands for) – similar to the previous 2 years. I prepared about 20 less sets of returns during the season this year, for a variety of reasons.
The tax filing deadline was extended from April 17 to April 18 at the last minute when the IRS encountered “system issues” early on the morning of the 17th.
No auto, computer, equipment, or weather issues during the 2018 filing season. And only a couple of IRS or state refund or processing delays or FUs in 2018, as usual mostly with NJ returns.
There was a small difference in my practice this filing season. I was truly “locked behind closed doors” for the entire season. I was up at my desk each morning between 4 and 5 AM during this time, and when February 1st came around, I forgot to plug my phone in at 9 AM each morning. After about a week I got spoiled – I enjoyed working through the day without the interruption of the phone (even though I have always screened calls) – and never plugged the phone in (unless I was expecting a specific call). I did, however, constantly check my email accounts, and responded promptly when appropriate. I found that, from my point of view, not having the phone on did not adversely affect the preparation of returns.
After preparing each tax return this season, I calculated the tax on 2017 income and deductions using the new tax law and rates of the GOP Tax Act, to see how clients would have fared if the Act had been effective for 2017, and shared the result with the client. I found that most would have paid less – ranging from $2.00 to several thousand dollars – but a handful would have paid more. One thing I learned from this exercise is that many returns will be much simpler next season and beyond because many clients would no longer be able to itemize under the new law. I am NOT complaining.
Taxpayers could no longer remain silent on full-year health insurance coverage, as they could last year, and I actually had to calculate a pro-rated Obamacare individual responsibility penalty for 2 clients (my first time using this procedure). A handful of clients had to reconcile advance premium credits, and I was able to save a married couple $1,500 by having them make a $1,000 deductible IRA contribution.
Once again, despite the fact that Congress required that IRS Form 1098-T issued by colleges and universities actually contain the correct information necessary to properly claim education tax credits and deductions beginning with tax year 2016, the IRS erroneously delayed this requirement. In most cases 2017 Form 1098-Ts continued to be as useful as tits on a bull. Thankfully it appears that this will not be the case with 2018 1098-Ts issued in 2019.
On the state side, I used NJWebFile to electronically submit NJ returns whenever possible, and permitted by the client, and used the state’s somewhat enhanced fill-in form when needed. I took full advantage of the excellent NY state truly enhanced fill-in Forms IT-201 and IT-203.
There were really no new tax developments during 2018 that did not involve the GOP Tax Act.
The IRS released a draft version of the new 2018 “postcard” Form 1040 and 6 new schedules at the end of June. The final versions are now available at the IRS website. What once could be fit on two well-crafted pages must now be entered on 7 separate forms. This new 1040 is probably the stupidest thing I have ever seen in my almost 48 years in the tax preparation business.
There is now a Schedule 1 for additional income and Adjustments to Income, a Schedule 2 for one group of other taxes, a Schedule 3 for nonrefundable credits, a Schedule 4 for another group of other taxes, a Schedule 5 for refundable credits, the totals of which would be carried over to the “post-card”, and a Schedule 6 for a foreign address and the information for a third-party designee,
This new “1 form into 7” was certainly not the idea of the IRS. It makes no sense for administration and processing of return filings. The Service was told to create a post card and it did. Idiot Trump promised his core cult a post-card sized 1040, so he must deliver a post-card sized 1040, regardless of whether it has any real value, legitimacy or appropriateness.
On the legislative front, the Bipartisan Budget Act of 2018, signed into law in February, expanded the foreign earned income exclusion and extended some residential energy credits through 2021. The House passed 3 bills that made up what they called “Tax Reform 2.0” at the end of September, including a bill that would make the provisions of the GOP Tax Act set to expire in 2025 permanent, but nothing has been done in the Senate. It is doubtful that the Senate will even consider the “2.0” bills – so they are pretty much dead.
In the 2018 mid-term elections the Democrats took control of the House (a truly good thing for the country considering the current state of the Republican Party), but Republicans maintained a majority in the Senate. So, for the next 2 years there will very likely be no legislation of any substance enacted on taxes – or anything. What the Democrats pass in the House will not make it through the Senate, and vice versa. Again, a good thing – none of Trump’s nonsense will become law.
So, fellow tax professionals, did I miss anything important?
Let me end with the same wish I had at the end of 2017. Let us pray that the new year will bring the removal of mentally unstable malignant narcissist Donald T Rump from the White House.