Highlights of the new tax law

Posted Jul 20, 2018 at 1:47 PM on Columbia Daily Tribune

My wife Pat and I love Central Missouri. We moved back to Columbia with our two sons (John and Elliott, now both Hickman HS grads) in 1999. We both grew up in St. Louis (she in Webster Groves and I in Bridgeton). Each of us lived in Columbia prior to 1999. I became a Certified Public Accountant (CPA) in 1983 after having attended Westminster College for two years and then receiving my degree from the University of Missouri. I have prepared income tax returns for more than 35 years.

But what makes me qualified to present this article on the new tax law is my advanced tax training and designation as a Certified Tax Coach, which I received in 2011. I have been a member of the proactive tax planning community now for seven years and have saved my clients more than $8 million in taxes since 2012. I have owned Columbia CPA Group, LLC since 2006. Our office is in the Village of Cherry Hill.

Through the Tax Coach community, I receive monthly training and have access to friends and mentors I have known for years. I have access to a network of experts with advanced training in taxes. A highly respected business coach compared our training to a tax attorney with a PhD. I also hold the Personal Financial Specialist (PFS) designation from the AICPA.

My tax planning journey started when a client of mine, a successful realtor, attended a tax planning seminar held by the Murray Bradford Tax Institute. He was inspired to hire his wife and his son for additional tax deductions, and sure enough he saved about $4,000 in taxes that year.

Then, the light came on. Those strategies were not new to me. Why wasn’t I the one to share those tax reduction strategies with him? I realized that, like many tax professionals, I had been on the IRS Compliance Treadmill. There are deadlines every month for all types of taxes. Like most accountants in public practice, I was focused on the compliance work; getting income, sales, payroll and excise tax returns prepared and filed timely to avoid costly IRS penalties. I thought that my clients expected me to prepare accurate, timely tax returns. But I had missed out on the bigger picture. It finally dawned on me that what my clients really wanted was for me to save them taxes!

That realization sent me on a quest to become a proactive tax planner. Less than a year later, in June 2011, I had attended advanced training through the American Institute of Certified Tax Coaches and had joined a community of proactive tax planners.

Now, let’s look at the new tax law. It was signed into law in December 2017 and mainly affects tax years 2018 and following. From what I have seen, most middle-class Americans will see a decrease in the federal taxes they will pay for 2018 and beyond. Also, tax cuts for Missourians have been passed, so our state tax burden will decrease as well.

For individual taxpayers, here are some of the tax breaks:

1. The Standard Deduction almost doubled (MFJ from $12,700 to $24,000, HH from $9,350 to $18,000, and S & MFS from $6,350 to $12,000). This will allow many taxpayers to avoid the hassle of tracking and retaining receipts for a variety of deductions because they used to itemize and just take the Standard Deduction.
2. The Child Tax Credit increased from $1,000 per child to $2,000. The phase-out thresholds were also greatly increased.
3. Most tax rates have fallen. The first tax rate remained the same at 10 percent. The second rate 15 percent fell to 12 percent, the third rate shrank from 25 percent to 22 percent and the fourth rate was reduced from 28 percent to 24 percent. That covers tax rates on taxable incomes up to $315,000 for married couples, which should cover 98 percent of filers in mid-Missouri. The last three new tax rates are 32 percent, 35 percent and 37 percent.
4. The Alternative Minimum Tax (AMT) threshold has increased to $1 million for MFJ and $500,000 for all others.
5. The Individual Mandate of the Affordable Care Act has been reduced to zero. Beginning in tax year 2018, there will no longer be a penalty for not having health insurance.

There are some taxpayers that will pay more in taxes. Simply put, the reduction in tax rates will not offset the lost deductions that vanished with the new tax law in some cases. Miscellaneous Itemized Deduction (subject to the 2 percent floor) have been eliminated. A list of popular, formerly allowed deductions follows:

1. Unreimbursed employee travel, tools, dues, publications, supplies, etc.
2. Home office deduction
3. Dues and subscriptions to professional societies
4. Legal fees related to one’s job
5. Professional licenses and regulatory fees
6. Malpractice insurance premiums
7. Rural mail carrier’s vehicle expenses
8. Union dues
9. Tax preparation fees
10. Job-related travel, transportation, lodging, meals and entertainment
11. Work clothes and uniforms
12. Depreciation on home computers used for investments
13. Indirect miscellaneous deductions from Forms K-1
14. Safe deposit box rental
15. Legal fees related to income or for tax advice
16. Repayment of Social Security benefits

People in this category fall into one of the categories below:

1. People who pay more than $10,000 in state and local taxes
2. Large amounts of unreimbursed employee business expenses
3. High investment and custodial fees

Overall, I commend Congress for reducing the tax burden of most middle-class Americans.

Aric E. Schreiner, CPA, PFS, CTC, is a managing member at Columbia CPA Group, LLC.