2019 tax season off to a delayed start

Time to get in line for the roller coaster of tax reform

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Donna H. Laubscher, CPA

There are ups and downs for every season, tax season being no exception. After the rush of the holidays, we are ready to fly right into our busiest time of the year – at least for those of us in the tax department. It is indeed much like an actual roller coaster ride. The anticipation is always there at the beginning and the exhilaration is there at the end, with all the upside downs and inside outs in between!

Normally this time of year, we are busy preparing for tax season – getting our processes and procedures into place, finalizing everything in our various software programs, discussing with clients their 1099 situations and starting accounting for business returns. We are still doing all these things, of course. However, except for Form 1099, which is due January 31, we are really unsure as to when any other tax returns can be filed. Now, that doesn’t mean to not get us your return. We can still get them into the roller coaster carriage and get them buckled into our workflow processes.

What’s the hold up?

Due to tax reform legislation that was passed in December of 2017 – the most comprehensive tax reform package since 1986 –we are still waiting on the finalization of forms, instructions, publications, regulations and other guidance related to this legislation that was passed more than a year ago. At one point, the American Institute of Certified Public Accountants estimated that more than 400 forms, publications and other worksheets would need to be updated to accommodate the tax legislation and the changes related to it. Late into the holiday season, we were still receiving temporary regulations from the Treasury relating to items on tax reform.

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With guidance not being completely clear or available, software companies have been programming based upon best guesses of what’s going to happen as far as forms, or lack thereof. So, this is a group effort on the part of many – the IRS and Treasury trying to help us make sense of the new law; the CPA and tax communities both trying to determine what we need to do for our clients, and how these changes will apply; and the software development companies that program the tax programs on which we are so dependent. So dependent.

New QBI deduction

One of the biggest changes affecting our clients is the qualified business income (QBI) deduction. There is no form for this. There will not be a form for this. There is a worksheet in the instructions, but this means that we get to check all the calculations manually without going through an actual form.
Yes, a worksheet for this complication of a tax law. A worksheet is what we have for computing the taxable portion of Social Security benefits. Actually, that SSA worksheet is longer than the QBI worksheet. Take another turn on the roller coaster while you figure that one out!

Form 1040

To top it all off, Form 1040 has a radically different look than it has for the last several years, which will cause even more grief on our part later in tax season. And if you think that your return is so easy that it does not apply to you – think again. There is no longer either a Form 1040A or a Form 1040EZ. But, no matter what you have heard while in the roller coaster line, this is not a “postcard” form. There are many pages and schedules – none of which you can just affix a stamp to and send through the mail.

So, the prior two page form is now two pages that are each shorter, with the potential of six schedules. These schedules may or may not be necessary for your specific return. And even though all these forms are shorter, they are each still printing on one 8 ½ by 11 page each, which has the appearance of a bunch of wasted paper.

For example, Schedule 2 is just called “Tax.” And is only four lines. If this applies, it is going to look rather lopsided. If all of these apply, you have gone from Page 1 and Page 2 of a 1040 to a potential 8 pages. It will probably take several rides on this new Form 1040 before we get into our groove on where to look for everything.

Will states conform?

As of this article, we don’t know how many states have decided to conform, not conform or do the dreaded partially conform to any of the new federal legislation. We do know that our state to the west, California, has decided to mostly not conform.

We also know that Arizona’s Governor Ducey opted to not call a special session of the legislature to deal with conformity. In the past, Arizona has customarily conformed to many of the changes made to federal law to make things simpler and easier for Arizona taxpayers. However, this one is not so easy. With the changes in itemized deductions, the conformity would end up in a tax windfall for the state. The estimates of how much of a windfall vary between $50 million and $250 million. Wow – that is a big range – take another ride on the roller coaster!

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The problem again comes back to when we will be able to file tax returns. Arizona is not the only state we are waiting on conformity decisions; it is just the one we are most interested in at the moment. And we don’t have an answer on that. So again, the software companies are making a best guess on what each state will do. But, in the profession, we are not always willing to go with that. What if we guess wrong? Then it means amended returns, which no one is very happy about.

Don’t wait!

So, we are anticipating a somewhat compressed tax season for 2018 tax returns. Please continue to gather your information and get it in as soon as feasibly possible so that we can file returns as soon as the software is available, and the IRS and the states are accepting them.

And, with states up in the air, flying in and out of the various “loop” holes of conformity, you may be unsure of what to do to prepare. So, please call us. We can help you decide on whether to work on gathering itemized deductions or not, based upon the potentially higher federal standard deduction. We can help with the tax fast pass for this tax season.

Donna H. Laubscher, CPA, Partner, specializes in tax planning and consulting for individuals. She can be reached at DonnaL@hhcpa.com or (480) 483-1170.