Domestic Taxes

Anxiety grows in first tax season under Trump law

This year’s tax-filing season has been like no other in decades, with taxpayers having questions over how they will fare when they file for the first time under the GOP tax law.

Tax preparers say they see clients showing more interest and anxiety about their taxes this year, since many of them are aware that a new tax law was enacted but are unsure of exactly how they will be affected.

Preparers also said that they’ve faced a number of challenges, because they have had to get up to speed on the tax law changes and manage their clients’ expectations.

{mosads}“I would say this is probably the most stressful [filing season] in recent memory,” said Samantha Nelson, a tax manager at the accounting firm RubinBrown in Denver.

The tax law that President Trump signed in December 2017 made a number of changes to the IRS code, including lower rates, a larger standard deduction, an expansion of the child tax credit and curbs to certain itemized deductions.

Most of the law’s changes took effect for 2018, so this is the first time that people are filing tax returns that reflect the bulk of the tax changes.

It’s also the first time that people are filing their taxes after the IRS issued new guidance that adjusted the tax withholding from people’s paychecks to reflect key provisions in the tax law. People get refunds if they have too much money withheld from their paychecks, and owe the IRS money when they file if they didn’t have enough withheld throughout the year.

Additionally, the tax-filing forms look different this year. The new individual tax return is significantly smaller but also includes a number of separate schedules.

The tax law is Trump’s biggest legislative accomplishment to date, so this year’s filing season has been of particular interest from a political perspective.

“It’s such a political story,” said Nathan Rigney, lead tax research analyst at H&R Block’s tax institute. “You’re seeing tax stories getting a lot more coverage this year than your average tax season.”

{mossecondads}Evelyn Pimplaskar, tax editor for Credit Karma, said it’s natural for taxpayers to be having some anxiety because they’re dealing with a new tax code.

“We’re all first-time filers this year,” she said. “We’re dealing with a pretty new tax situation for most people.”

The recent 35-day government shutdown, which ended days before the filing season began, also complicated matters. When the government reopened, the IRS faced a backlog of correspondence and lower levels of service on their phone lines.

Tax preparers said that they were busy even before the filing season began, because they had to learn about the tax changes and also had to figure out how best to explain the changes to clients.

Now that the filing season is underway, preparers say that they are spending more time preparing their clients’ returns, and are also spending more time reviewing the documents with their clients to give them a sense of how their taxes changed.

“We’re spending a lot more time reviewing the tax returns with the client, and explaining how [the tax law] impacted them,” said David Young, a certified public accountant in Rochester, N.Y.

The Trump administration estimates that about 80 percent of taxpayers will see a tax cut for 2018, compared to if the law hadn’t been enacted, while another 15 percent of taxpayers will see their taxes stay about the same.

Still, people have a number of questions about how they will shake out due to the changes.

Many taxpayers have been focused on the size of their refund, which reflects the extent to which they overpaid in taxes over the course of the year. While many people who got a smaller refund still got a tax cut, people often focus on their refunds because they count on them to pay off debt or make major purchases.

Rigney said that he’s “seen people in tears” because they’ve gotten bigger refunds than expected, but has also “seen people very frustrated because they’ve gone from getting a refund to owing.”

Tax preparers said they’re encouraging people who are upset with their refund size to adjust their tax withholding. They also said they are spending some of their time explaining to people who got smaller refunds that, in many cases, their tax liability still went down.

IRS data released Thursday found that the average refund through Feb. 22 is 1.3 percent bigger than the average refund was at a similar point last year, after previous batches of IRS data showed a decline in the average refund size.

Some tax experts said that they hoped that the latest batch of refund data would alleviate taxpayers’ concerns about refunds.

“Hopefully that news will put them at ease,” said Lisa Greene-Lewis, a certified public accountant and tax expert with TurboTax.

But others said that they expected concerns about refunds to remain, because whether someone’s refund increased or decreased depends on their specific situation. Some said they’re concerned that the initial narrative of smaller refunds will be hard to overcome.

Ryan Ellis, a conservative tax lobbyist who also is an enrolled agent who prepares people’s taxes, said he thinks “there was a completely irresponsible feeding frenzy” in the media over the initial refund data. He worries there will be less coverage of the new data about the larger average refund size than there was about the earlier statistics.

He said that his clients, who tend to be self-employed D.C.-area residents who make six figures, have generally been pleasantly surprised about the size of their refunds and tax cuts.

“It’s surprising them on the upside for sure,” he said.

Taxpayers have also had questions about a number of other topics.

Some taxpayers in high-tax states have been concerned about the law’s cap on the state and local tax deduction. Some taxpayers may see a tax increase in part because of the cap, though most taxpayers in high-tax states will see a tax cut even with the limit on the deduction.

Tax preparers also said that people have had questions about whether they should take the standard deduction this year or itemize their deductions. More people are expected to take the standard deduction this year because its size was significantly increased under the tax law.

The IRS is still issuing guidance about the new tax law, and questions remain about how certain provisions in it work.

Some tax preparers expect to see an increase in the number of taxpayers who file extensions this year, and said they’ve had to explain to their clients who may feel disappointment in filing an extension that they can get a lot of value out of doing so.

Extension requests are expected to increase because some people may be waiting on IRS guidance about certain provisions, and they may also be waiting to see whether Congress passes legislation to fix drafting errors in the tax law and to renew certain tax breaks that expired at the end of 2017.

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