Why We Need to Educate Clients About the TCJA

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I got an email from a client a few weeks back, asking if my fee would be the same since the tax code has been simplified.

I replied that the Tax Cuts and Jobs Act (TCJA) of 2017 was not as straightforward as he had been led to believe, and my fee might actually be more than it was last year due to the additional schedules and complexity of the law. I have not heard back from him, and I don’t think I am going to. 

The TCJA, complete with the “postcard” Form 1040 and its related schedules, has not only increased the amount of time it takes to complete a tax return, it has complicated the process. Clients, however, mistakenly believe the tax code has been simplified and taxes lowered. They are often shocked when they receive a larger bill for my services, and their refunds, or lack thereof, have caused headaches for our office.

The TCJA is 2,053 pages long. It dramatically changed the Tax Reform Act of 1986, which was supposed to simplify the tax code at that time. As accounting professionals, we know that when the government says it will simplify something, it always seems to complicate the matter.

In regards to the “simplification” that was supposed to come with the TCJA, the government took away most itemized deductions, added a complicated formula for figuring out the Section 199A deduction afforded to pass-through companies, increased the standard deduction, lowered tax rates, removed exemptions, increased the Child Tax Credit, repealed the rules for undoing a Roth contribution and lowered corporate income taxes to 21 percent. There’s also the special rules for foreign corporations and the creation of Opportunity Zone tax benefits.

In short, the TCJA complicated the entire tax code. In response to it, the IRS has issued countless guidance, Rev Procs and temporary regulations.

What was poorly publicized was that the TCJA was designed so that taxpayers would have more money in their pockets all year. This was achieved by reducing the amount of withheld federal tax that was taken out by employers. This has caused a lot of confusion amongst taxpayers who are used to getting a large refund: This year, many either have a reduced refund or owe taxes. Accountants are in a precarious situation when it comes to explaining this to clients.

For good measure, we began the 2019 filing season with a partial government shutdown, resulting in a skeleton crew of IRS employees who were to implement the TCJA for the filing season. In fact, just a few short weeks ago, we got the final regulations on Section 199A deductions and how these would work. That information would have been helpful a long time ago. Unanswered IRS letters and filing and refund delays are complicating the mess.

With everything that happened during 2018 and even so far this year, tax professionals, now more than ever, have had to be on their toes keeping up with all of the communication from the IRS interpreting the new law. In addition, Form 1040 has drastically changed and is a “postcard.” However, it was never publicized that the postcard added additional schedules to the 1040, making extra work for professionals.

The extra work and the time I have spent keeping up with all of the changes, guidance and Rev Procs have led to an increase in fees. Normally, each year I increase my fees by 5 percent for inflation and other things. This year, however, my fees have increased by 10 to 20 percent. With all of the hoopla of how the tax code has been simplified, the dramatic increase has become sticker shock to some clients.  For the first time in 25 years of practice, I have had to explain my fees more than ever, and I have lost more clients than I have in previous years.

In sum: When we educate our clients, they usually understand the challenges we are facing. However, there will still be some who just won’t get it.

About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.

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