When the Tax Cuts and Jobs Act took effect last January, businesses were bewildered by the rampant changes that were to take effect in 2018: New rules for deductions, changes in income and capital gains rates and adjustments to charitable donations were just a few of the most notable amendments. And now, after a full year of sifting through this sweeping tax overhaul, deciphering all of the details and considering the bill’s overall long-term impact, experts are still uncertain if small businesses and individuals will benefit from this reform in 2019.
“It’s still a little hard to say if businesses and individuals will benefit because we still have not done one single tax return,” reported Jack Gold, a CPA and partner with Adelman, Katz & Mond in Manhattan. “And because of the government shutdown I still haven’t seen the final forms, so there’s really no way to be 100 percent certain if this tax reform will help or hurt the average taxpayer.”
The President’s reform, which cuts individual income tax rates, doubles the standard deduction, eliminates personal exemptions and cuts the corporate tax rate from 35 to 21 percent, is predicted to simplify the tax structure but reduce the average revenue. But Gold said that revenue should have appeared in taxpayer wages throughout the year.
“Withholdings were adjusted in January 2018, so while the average taxpayer may not see a refund this year, they were seeing $30, maybe $50 more in their paychecks,” Gold said. “But in all honesty, if you put an extra $30 a week in someone’s pocket, it falls out just as quick. Even though it is the same thing, a $2,000 lump sum refund at the end of the year seems more substantial. You basically spend that $30 a week in Starbucks.”
New York residents will reportedly be hit hardest, the accountant noted, since taxpayers no longer have the ability to deduct the amounts paid for state and local taxes on their federal returns. And because residents of New York pay one of the highest state tax rates in the country, the loss of these deductions may result in a significant financial burden.
“Personally, I think people outside of New York will benefit from this tax reform, maybe see an additional $1,000 to $2,000 in their return,” Gold revealed. “But a family of five living in Staten Island may not benefit from all of these changes.”
The Tax Policy Center, a non-partisan think tank based in Washington, D.C., made up of nationally recognized experts in tax, budget and social policy who have served at the highest levels of government broke it down as such:
“The impact of the proposal on individual taxpayers differs depending on their income sources, demographic and family statuses, and other characteristics that affect eligibility for certain tax benefits,” the organization summarized in a report. “Our estimates of the number of taxpayers that would pay more tax or less tax than under current law exclude certain minor provisions for which it is difficult to assign the tax changes to specific taxpayers. Overall, the excluded provisions represent a net tax increase, so we are overestimating the number of taxpayers that would see a tax cut and underestimating the number of taxpayers that would see a tax increase. In 2019, 76 percent of taxpayers would receive a tax cut from the included provisions, averaging almost $2,000, and about 9 percent would face an average tax increase of about $2,700 In the bottom income quintile, 53 percent would receive a tax cut and 2 percent would face a tax increase. In the middle income quintile, 88 percent would receive a tax cut and 11 percent would face a tax increase. In the top 1 percent of the income distribution, 86 percent would receive a tax cut and 14 percent would face a tax increase.”
Warren Bergstein, also a partner and CPA with Adelman, Katz and Mond, who specializes in tax and financial planning, says the reform is a big adjustment for small business.
“We hosted a seminar on this at the College of Staten Island and spent an hour talking solely about business deductions,” Bergstein said. “Generally speaking, small businesses do not pay taxes at an individual level but small corporations do pay at the corporate level so that 20 percent business deduction is making things much more complex.”
That’s why Gold, who calls the reform “a confusing time for all,” recommends speaking to a tax advisor – even if you traditionally tackle your tax forms alone.
“I’ve lived through a lot of tax changes,” he concluded. “But these are the most complex by far. The best advice I can give is to see a professional, even if you never had to before. There are so many changes to consider – it’s only logical to rely on a little assistance.”