President Trump asserted that H&R Block would no longer be needed due to the simplicity of his tax reform.
Nonetheless, the tax framework proposed by Republicans and Trump is unlikely to eliminate the need for tax preparers.
The comprehensive tax legislation made public on Friday does offer some level of simplification, but it falls short of the expectations set forth. Moreover, it introduces multiple complications, especially for small businesses.
Republicans have claimed that filing your tax return under their tax plan could be as easy as using a postcard. This appears improbable. Even if the IRS streamlines the 1040 form, numerous instructions would still be necessary to complete it accurately.
On a positive note, experts acknowledge that the plan simplifies things by almost doubling the standard deduction to $12,000 for single filers and $24,000 for those filing jointly.
This change would significantly lower the number of taxpayers who itemize deductions—individuals only do so if their total deductions surpass the standard deduction.
To itemize deductions, taxpayers must maintain extensive records of qualifying expenses and ascertain whether their income or other criteria impact their eligibility for deductions.
Related: Here’s a breakdown of the GOP’s final tax plan
Ultimately, around 30 million households that currently itemize their deductions are expected to opt for the nearly doubled standard deduction instead.
“This change should lighten the burden of tax record-keeping and filing. Taxpayers may not notice this immediately, but they are likely to adjust their approaches over time,” noted Mark Mazur, director of the Tax Policy Center.
However, of those 30 million who might shift, many “will still need to calculate whether they should itemize or take the standard deduction,” pointed out Martin Sullivan, chief economist at Tax Analysts.
Related: Modifications to the child tax credit – Implications for families
It’s essential to remember that deductions are not the sole tax benefits subject to eligibility conditions, income limits, and other perplexing regulations.
The GOP’s tax reform retains and, in a few cases, broadens several tax credits. As with the existing tax code, the eligibility rules for these credits can be quite intricate. Take, for instance, the Earned Income Tax Credit and the Child Tax Credit—the complexities persist.
Even if tax filing became as simple as using a postcard, every line on it would come with a multitude of pages of instructions and forms to substantiate the numbers reported, explained Kathy Pickering, executive director of The Tax Institute at H&R Block.
Moreover, it is crucial to note that the tax legislation retains the Alternative Minimum Tax for individuals. While it does increase the income exemption thresholds to reduce the number of people affected, individuals will still need to determine their status, which entails calculating their tax obligations under two different sets of regulations and paying the higher amount.
Related: The implications of the tax bill for homeowners
Lastly, experts express concern that the GOP tax plan could actually complicate the tax filing process for individuals with business income from pass-through entities, which are not directly taxed through the corporate tax system. These entities consist of sole proprietorships, partnerships, and limited liability corporations. The taxes for owners, partners, and shareholders are reported on their individual tax returns.
The new GOP tax legislation would subject wages, business income from pass-throughs, and corporate profits to significantly different tax rates, diverging from the current structure where wages and pass-through income share the same rate. Additionally, it introduces a complex calculation to determine what portion of a pass-through owner’s income is eligible for the lower business tax rate versus the higher wage tax rate.
“The rules concerning pass-through entities are exceptionally intricate,” states Mazur from the Tax Policy Center. “I anticipate that taxpayers and their advisers will actively seek ways to navigate these complexities.”
CNNMoney (New York) First published December 17, 2017: 3:43 PM ET
