During this running tax season, individuals and businesses are finding tax preparers or CPAs to get help in filing their taxes. Even if you, being a CPA, use the latest accounting software applications to automate most of your calculations and form-filling, your schedule might still remain hectic during this busy time of the year due to client calls & concerns, appointments, and loads of paperwork.
Therefore, as you are extremely busy, here are some amendments in the tax laws that you must be aware of so that you can serve your clients with better CPA tax preparation services. Before going ahead to the amendments in the tax laws, let’s revise what tax laws are.
About Tax Laws:
Tax laws are the legal norms and procedures that local, state, and federal governments implement to calculate the value of tax you have to file. The laws include corporate, income, luxury, excise, estate & property taxes, along with a few more. In the U.S, Congress and state legislatures have the authority to create most tax laws and change them often as per the requirement.
This makes it unnecessary to read old laws before preparing tax returns as the forms and tax filing instructions may change each year as per the new tax laws. The broad area of tax law is becoming complex and changing each year due to a couple of reasons that are as follows.
●The tax code has more often been used for objectives other than revenue generation, such as achieving social, political, and economic agendas.
●Another reason behind the complexity in tax laws is the manner in which tax code is amended.
2018 - 2020 Tax Reform Highlights:
Most tax filers should be aware of the fact that tax reforms have altered the federal income tax brackets, changed many credits, and doubled the standard deductions. Most tax reforms are effective from Jan 1st, 2018, out of which the most important rules are as follows.
Let’s now discuss some of them.
Previously, the 529 college savings plan could only be applied for expenses on higher education, whereas, it can now be applied for expenses on elementary, private, secondary public, or religious school education. With new rules, you are allowed to withdraw up to $10,000 per year per child for education costs.
Individuals who chose not to buy the insurance and didn’t qualify for an exemption had to pay tax penalties as per the income. From Jan 1st, 2019, consumers without any health insurance don’t face penalties.
People were previously allowed to deduct the alimony payments from their income, and the receivers could include them as income. From Jan 1st, 2019, the receivers are not allowed to claim the payments as income, and the alimony payers can not deduct them. This new rule is applied to all separation/divorce agreements signed or modified after Jan 1st, 2019.
Previously, the exemption amount for single filers was $54,300 while $84,500 for married couples filing together, and $42,250 for couples filing separately. The new rule, effective from Jan 1st, 2018 through Dec 31st, 2025, states that the couples filing tax jointly will have exemption starting at $109,400 and $70,300 for all others (apart from trusts & estates).
Before Jan 1st, 2018, the corporate tax rate was 35% on income greater than $10 million, which is now reduced way down to 21%.
In the past, taxpayers could claim itemized deductions of the expenses on tax preparation, business expenses, and investment advisory fees. But from Jan 1st, 2018 through 2025, taxpayers can not claim any of such expenses as itemized deductions.
Taxpayers were previously allowed to include state and local property, sales, and income taxes as itemized deductions. But from Jan 1st, 2018, Taxpayers have a limit to claim an itemized deduction of just $10,000 in combined state and local income, property, and sales taxes.
The income tax of all pass-through business owners’ was subjected to their personal income. After the implementation of the new rule from Jan 1st, 2018, pass-through business owners are allowed to deduct up to 20% of their business income from a partnership, sole proprietorship, an S corporation.
The tax rate on the highest-earning - $418,400 for individuals was 39.6%, and the same was for couples earning $470,700 and filing taxes jointly. Now from Jan 1st, 2018, for individuals earning above $500,00 and married couples earning above $600,000 and filing taxes jointly, the tax rate has fallen from 39.6% to 37%.
- Tax deductions for teachers, adoption assistance, electric cars, student loan interest will be the same.
How can CPAs Stay Updated with the Amendments?
If you want to update your knowledge about the latest tax reforms, which would also help you serve your clients with the level of service they expect, there are a few things you should do to stay updated with the amendments in the tax laws.
1. Read, Read, and Read:
Make it a habit to read, especially business periodicals, financial literature, and more. You also need to become aware of the new tax law that is proposed, if the laws pass or not, and what impacts would it have on your clients.
Additionally, you should subscribe to local business journals and regularly read national financial publications, such as USA Today, Money, The Wall Street Journal, and more.
2. Get a Subscription of AICPA’s Newsletter:
As the AICPA, which stands for the American Institute of CPAs, is all about the CPAs and their working in the USA, it takes accounting standards and changes in them very seriously.
Therefore, singing up their newsletters will be a big help for you and your associates to stay updated with all the accounting and tax law changes. Also, you can get accurate information on when the new laws will come into effect and what to expect as their impacts.
3. Check for Regular Software Updates:
You might be using some or at least one accounting and tax preparation application to provide your clients with better overall services. Make sure you keep a check on the updates provided by the software company. Most tax software will send you notifications for updates, which include all critical amendments that are done to the state and federal tax codes.
This way, your tax software applications get updated with the latest laws automatically without any of your manual efforts, while eliminating most complications.
4. Take Part in Conferences and Seminars:
Meeting with other professionals from the accounting and tax world is a smarter way to improve your knowledge and skills; it also opens doors for a variety of other opportunities.
There are some state and national associations and organizations of tax professionals such as NATP (National Association of Tax Professionals) that organize conferences and even regional seminars to discuss various tax-related topics. This way, you can get yourself updated on things that you might have missed.
5. Visit IRS Website:
For the generation that believes in the digital transformation, the IRS has come up with its website to provide tax law information to the public and tax professionals. Although the information there will be in a detailed description, which at times makes it hard to understand, it is the place where you will find every tax law information you need.
Additionally, IRS also conduct online seminars that can bring great help for tax professionals across the USA.
6. Check Your State Tax Laws Regularly:
State governments also regularly address varying tax law issues and rectify them by altering the laws. Thus, it is vital for you to check for these reforms regularly; you can find these updates on their website or collect the latest copy of tax laws from the state and local taxation departments, especially to get general and in-depth summaries.
7. Conduct Group Meetings and Provide Training
To make sure every CPA in your firm is running on the same track, you can gather them for meetings every few weeks to discuss tax law changes and other related topics. This way, your CPAs will be able to share knowledge with each other, and everyone (if not) will come on the same track.
In addition to that, your staff will get opportunities to clear out their confusions related to tax laws and changes, leading you to revise everything and make use of the knowledge in saving your clients’ money and avoiding IRS penalties in the coming.
8. Become the Resource
Since your clients depend upon you for their accounting and tax preparation, they expect you to be knowledgeable enough to satisfy their needs. This makes it essential for you to be the resource of information related to tax law changes.
You should be readily available to answer your clients’ questions about the same rather than noting down the questions, collecting information from other sources, and then providing the answer some other time later.
Keeping yourself updated about tax law amendments will help you maintain your firm’s reputation of professionalism and competence in the industry.
While the ways mentioned above are extremely helpful to become aware of the tax law amendments, the core motive of becoming aware is to make your CPA firm more credible and competitive.
What’s more! While preparing your clients’ tax return, there will be almost no errors, and you can also help them prevent rejection or an IRS audit. As a result, your clientele will grow trust in you, leading to high levels of client satisfaction and even the arrival of more potential clients.
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