Uncertainty Still Looms on Tax Horizon

YOUNGSTOWN, Ohio – It’s been nine months since the Tax Cuts and Jobs Act of 2017 was signed into law and by now, most accountants have figured out the big changes.

The revised tax brackets are in place, standard deduction amounts have nearly doubled and itemized deductions for state and local taxes have new limits.

But as accounting firms start to gear up for tax season, there are still some things to be worked out, changes and rulings that are made at the pace of government. Take the IRS’ guidance – proposed regulations, in official parlance – on the qualified business income’s 20% deduction that was initially supposed to be issued in mid-July, says James Rosa, principal of HBK CPAs and Consultants’ tax advisory group. That date came and went. Then July 31 came and went. The proposed regulations were finally issued Aug. 8.

“They provide a preamble, a sort of discussion of what’s going on and specific regulations. That was 184 pages,” he says. “They’ve issued regulations on rapid write-off depreciation of equipment and things like that. They’re long regulations.”

And there’s still work to be done on the qualified business income, or QBI, proposed regulations. A public hearing will be held Oct. 16 featuring trade groups, tax professionals and business owners to gather feedback, which the IRS and Treasury Department will take into account when creating the final regulations.

It’s those sort of things, the proposed regulations that can help convert gray areas to black and white, that certified public accountants are keeping an eye on between now and the tax deadline.

“We’re happy we got regulations for the qualified business income. We still have questions for individuals as far as real estate is concerned,” says Dan Moore, founder of D.T. Moore and Co. in Salem. “The big one is what individuals in the real estate sector are qualified as a trade or business for income purposes.”

And at Farmers Trust Co. in Boardman, vice president Barbara Repasky and the rest of the tax team are awaiting some information on trust returns, although major points – like capital gains, expenses, trustee fees and real estate taxes – are known.

“My only trepidation is to be certain that we’re doing what we’re supposed to be doing. And I don’t have great trepidation about that,” HBK’s Rosa says, a sentiment that seems to be shared by many CPAs. “This is our business. If we have an unclear tax law, it’s our responsibility to interpret it for our client.”

That interpretation is supplemented by the sharing of information, says Sharon Carbon, a CPA at Yurchyk & Davis Accounting, Boardman.

“The good news is it’s the 21st century, so a lot of it’s through podcasts, online publications, newsletters and our continuing professional education,” she says. “As more information develops on certain deductions, there’s always more information available.”

While accountants don’t seem concerned about the upcoming tax season – Repasky notes Farmers Trust’s software is updated with new requirements, leaving it up to preparers to double-check everything – their eyes are on the horizon.

On the final day of 2025, 23 provisions from the Tax Cuts and Jobs Act will expire, including the return of individual income tax rates to the levels of the previous system, the QBI and the reduction of the child tax credit. That’s assuming the system stays in place until then.

“You’ve got all of these tax laws that will revert in 2026. That’s a source of frustration,” Moore says. “We can plan out the next few years, but all of this is riding on the fact that Congress could make changes.”

Adds Rosa: “We’re not two years into this president’s term with midterm elections coming up and everything could change. With the next presidential election, who knows? It could change again.”

At Farmers Trust, the horizon includes financial futures, not just changes in law.

“Even if an outside CPA is preparing [their taxes], we still want to stay up to date because we can know if we can take a little bit more and invest it because they’ll benefit from those lower tax rates,” says Kelsie Schiraldi, a trust officer with Farmers Trust.

While industry professionals are staying in the loop, clients have concerns of their own. Most of them, the CPAs say, surround the system as a whole – what’s different, what should be changed, how does this affect long-term plans. When it comes to individual returns, all are sure to point out the changes in withholdings.

“Everyone’s paychecks got a little bigger in February. I’m afraid some people aren’t going to check their withholdings, which means a big surprise and owing taxes,” Repasky says. “I think we’re going to be hearing a lot in February and March that people aren’t happy.”

Communicating those changes has become a priority. HBK hosted seminars to update clients. Carbon says Yurchyk & Davis’ software allows the firm to show clients what their 2018 forms and returns will look like using data from 2017.

“There are still some deductions and credits where more information is still developing. It’s a continual learning process,” she says. “We have a few clients with foreign income that will be affected. Really, it’s all about staying on top and reading and learning.”

Pictured: Barbara Repasky and Kelsie Schiraldi of Farmers Trust say the horizon includes finacial futures, not just changes in law.

Copyright 2024 The Business Journal, Youngstown, Ohio.