A year after the passage of the federal Tax Cuts and Jobs Act (TCJA) of 2017, controversy over the legislation’s usefulness to taxpayers and business owners has settled down somewhat. However, some individuals and companies are continuing to wonder how they will manage to complete a tax return that only faintly resembles its predecessors.
Alyssa Lebovic, CPA partner at Keller & Lebovic, CPAs, said for individuals, even the size of the forms will be different.
“The 2018 tax returns will see the first implementations of most of the provisions of the new law,” she said. “The individual tax forms themselves are completely revamped on shorter, ‘jumbo postcard sized’ pages that barely resemble the old ones.”
Other changes include a cap on the amount of state and local taxes a taxpayer may claim and limits on other commonly itemized deductions. According to James Brown, managing partner of James D. Brown, CPA, “The biggest change is the $10,000 cap on State and Local Taxes (SALT). New Jersey is a high tax state so the cap will have a greater impact on New Jersey residents than those living in other states. As a result of this cap and the higher standard deduction, many individuals who have historically itemized deductions on their returns will now utilize the standard deduction.”
Businesses will find a less dramatic overhaul of their federal tax forms. A new Qualified Business Income deduction offers the opportunity for business owners who receive income via a “flow-through” entity, such as an S-Corporation, a partnership, a sole proprietorship or a single-person LLC, to have as much as 20 percent of income from that source excluded. However, Lebovic said, there are a number of limitations on the deduction.
“There are many complicated restrictions as to how much of this 20 percent can be deducted,” she noted. “As a result, not everyone will see that full deduction, or in some cases, their income may preclude them from enjoying any of it. It’s so complicated that full-day seminars have been offered just on this one provision of the new tax law.”
At the state level, there also will be some new provisions going into effect. Joseph A. Lizza, managing partner of Lizza, Kmetz & Associates, LLP, explained, “New Jersey has also joined the tax change trend. Certainly, the changes are far fewer than on the federal side. New Jersey has increased its property tax credit from $10,000 to $15,000, and created a new child and dependent care credit for eligible residents. In addition, the law increased the tax rate for income over $5 million, created a health insurance penalty and implemented a host of employer tax changes.”
Change = opportunities for some
Although the tax law changes have produced some confusion about how much will be owed this year, there are also new opportunities, according to Michael Hochman, partner-in-charge of the New Jersey office of Grassi & Co.
“The other big change is the increase in the federal estate tax exemption for married couples to $22.4 million,” he said. “People should be revisiting their wills, estate planning and gifting strategies before this new exemption amount sunsets at the end of 2025.”
Brown said that taxpayers wanting to make charitable contributions could push the deduction past the standard by rearranging their contribution schedule, making it worthwhile to itemize.
“Many individuals will no longer find it beneficial to itemize due to the increased standard deduction,”he said. “However, this also creates an increased opportunity to ‘lump’ deductions, such as charitable contributions into a given year. Accelerating (or delaying) them into one tax year could potentially put you over that threshold, making the contributions 100 percent deductible.”
For businesses, one of the big wins from the new tax guidelines is the ability to change accounting methods for enterprises with revenue under $25 million.
“I worked with a $20 million-a-year distributor who took advantage of changing their method of accounting from accrual to the cash method of accounting—which helped save them about half a million dollars in taxes,” Hochman said.
The moral of this year’s tax story: plan ahead
All the firms interviewed for this article spent a good part of 2018 preparing clients for changes in tax laws. Some provided newsletters and blog posts; others hosted seminars explaining specific aspects of the new laws. For individuals and business owners who waited until 2019 to deal with the changes, Lebovic’s advice was simple: fill out your returns as soon as possible.
“The best advice I can give is to prepare your return early,” she said. “If you’re due a refund, the sooner you have your return prepared, the sooner you’ll get that refund. If you owe money, the sooner you find out, the more time you’ll have to plan for it.”
Lizza said this isn’t the first time for major modifications to U.S. tax code and this year’s changes are a reminder that tax planning is a year-round endeavor.
“The greatest lesson that we have once again been reminded of by the TCJA is that tax planning is not a single event that we can silo and do post year-end with our tax filing,” he asserted. “It is a systematic checkup that needs to be done multiple times during the year. In addition, like any other law, tax code can and will change. The more knowledge you have of your current tax situation, the more successful you will be in navigating any changes which come down the road in the future.”
The Meadowlands Chamber has among its membership a mix of accounting and tax preparation agencies covering the tax needs of both individuals and businesses. Each has its unique focus but all understand the interplay between federal and state requirements and how to leverage that knowledge for their clients’ benefit.
Keller & Lebovic, CPAs
Keller & Lebovic, CPAs, located in Fair Lawn, works with small businesses of 10 or fewer employees. Partner Alyssa Lebovic says her organization is predominantly a tax-oriented firm: “Our tagline is ‘we help you keep more of what you make.’ That goes for both businesses and individuals alike.”
The firm helps businesses, executives and other high-net-worth individuals with tax planning and preparation, estate/financial planning and business problem solving.
(201) 797-1966, www.kellerandlebovic.com
James D. Brown, CPA
Located in Teaneck, the firm of James D. Brown, CPA, delivers accounting and tax services for individual clients as well as small- to medium-size businesses. The firm also works with professional service providers such as physicians and attorneys.
Managing Partner James Brown said his firm works with clients year-round, offering planning sessions and educating clients through a weekly blog and monthly newsletter. In addition to tax planning, James D. Brown, CPA, offers business consulting, payroll services and assistance in dealing with IRS issues.
(201) 357-5228, www.jbrowncpa.com
Grassi & Co.
Grassi & Co.’s Park Ridge office works with middle-market companies in industries including construction, manufacturing, architecture, healthcare, engineering, financial services, technology, real estate and cannabis. They also provide tax services for individuals. Partner-in-Charge Michael Hochman said the firm complements its full-service offerings with a broad range of consulting services. To educate clients about the coming tax changes, the firm provided seminars in 2018 outlining how attendees could achieve tax savings under the new laws.
(201) 808-9800, www.grassicpas.com/new-jersey
Lizza, Kmetz & Associates, LLP
Lizza, Kmetz & Associates, LLP, with offices in Hoboken and Lyndhurst, provides tax and accounting services for businesses ranging in size from small, local enterprises to multinational organizations. The firm works with classic brick-and-mortar businesses as well as internet-based firms. The firm also advises individuals on high-net-worth family tax planning and expatriate taxation.
Joseph A. Lizza, managing partner for the firm, said it emphasizes touching base with clients more than once a year to adjust their tax strategies as laws and circumstances change.
“The biggest challenges we are facing with the TCJA is educating our clients as to the massive amount of change brought about by this sweeping tax revision…we have constantly tried to focus their attention on the actual tax dollar effect, as opposed to the sound bite coverage which has surrounded this change,” he said.
You can find the ideal accounting and tax advisory firm for your needs in the business directory of the Meadowlands Chamber at www.meadowlands.org.
(201) 896-1170, www.lizzacpa.com
Liz Massey is a freelance writer and editor based in Fredericksburg, Va.