Tax & Accounting News

There's an App for the 2018 Tax Changes, Right?

by
Bob Mason
on
3/25/2018
There's an App for the 2018 Tax Changes, Right?

2018 is ushering in some of the biggest changes to federal income-tax laws in decades. Meanwhile, many are thinking they just need to wait a few months and someone will code all the relevant options into a software application, capturing the new changes and resolving any required guesswork. Tax software in computer programs and now in smartphone apps is capable of crunching basic rule applications. But the 2018 tax changes are much more complicated than a simple set of yes-or-no questions. Here are some examples:

  • 529 Savings: Long known for being a tax shelter for higher-education savings without additional taxes on the gains to be used to pay for college, now the same accounts can be used to pay for K–12 private school costs. The software can try to play if-then situations for planning. But the real impact of this change has to be combined with different factors only a human planner can know to address from one family to the next. Software can't identify differences between families. For efficiency and standardization, programs need to be written with established defaults, otherwise, the necessary coding would become immense. Ergo, an advisor is the better way to go for a custom approach to pay for your children's education via tax shelters of this kind.
  • Pass-through Business Income Deduction: This one seems straightforward, but the catch is hidden in the details. What exactly is viable business income versus personal income? How about reasonable compensation? The software can only work with what the user submits, but a tax preparer can question, gauge a response, and delve into something that sounds fishy. The deduction is only as good as the data is valid; a tax audit will only reinforce that fact.
  • State and Local Tax Deduction: Even though the deduction is limited to $10,000 under the new changes, just like the Pass-through Business Income change, how one gets to the deduction is what matters more. Again, items used to make up the deduction claim are subjective in many cases, depending on what was bought or paid for in the tax year. Not everything is viable, but people can get creative. A phone app or computer program is not going to know the difference between a legitimate input and one that bends or breaks the rules. The software will simply add up the applicable math. And does software even know what bunching is?
  • Life Decisions: Software is a horrible tool to use for life planning. If you're making decisions about when and how to go to college, what home deductions will apply, or whether to get married or not, tax software is not going to give the best answer for a given situation. Instead, programs are going to provide an output based on general rules that may or may not be relevant to your specific situation. What really should be driving these major life decisions is the direction you want your life to go. Then, with that idea in mind, a tax advisor can help identify where there are advantages to be had and when there are traps to avoid.

To really ensure you're in a good place, with the necessary adjustments the tax changes require, seriously consider working with a qualified tax advisor for 2018. Many of the changes put into play are wide-ranging and not simply new limits on deductions. In many cases, entire shifts between tax brackets have occurred for many filers, but they just don't know it yet because the ramifications haven't materialized. It's very likely 2018 will go down as the year that fundamentally reshaped more people's income taxes and refunds than most other changes passed in the last 50 years combined. And many will see their tax bracket alone decrease by at least three percent. However, there are a lot of deductions that have disappeared, or they are at least unavailable until 2025 under the new rules.

A qualified tax preparer or adviser will be trained and, more importantly, can customize advice to specific needs. So if you want a cookie-cutter response that may not make sense to your specific situation, yes, there will likely be an app for 2018. However, if you want to really apply the new tax changes well, you need a trained, human mind working in your favor for the 2018 tax-filing cycle.

Bob Mason, CPA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].

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Bob Mason

Bob Mason

Bob Mason is the founder of Coast Financial Services Inc. servicing both the Santa Cruz, and San Jose areas. Bob Mason is a skilled financial professional who is fully equipped to assist any of your accounting needs. Founding his firm in Santa Cruz, Bob understands the importance of small businesses and how they form the backbone of the area. Coast Financial Services, Inc. has been dedicated to the growth and profitability of businesses in Santa Cruz for 17 years. To learn more about Bob Mason and the rest of his team, visit their website.

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