So the Trump tax plan has been signed into law. There will be a mad rush to take credit for the good parts and place blame for the bad parts. With that in mind, be careful who you listen to.
I watched New York Gov. Andrew Cuomo's rant about how this was strictly a political move to punish states that are heavily Democratic supporters. Could be. I don't really know. But I think I have this right. The heavily Democratic states tend to have high taxes. They also have very well-paid government employees who have fantastic benefits. If a resident of a blue state has very high state and local taxes, it should be up to them to finance their legislature’s largess with government unions who fund the Democratic Party. If a person in a 25 percent tax bracket can deduct their local taxes, then the rest of us who do not live in those states fund the shortfall of their budget. We get no benefits and may, in fact, be appalled at the Democratic Party’s relationship with the unions. Be careful who you listen to.
Be very careful of any financial or tax moves on what you hear in the media. I believe it was Gov. Cuomo who was suggesting people in New York state pay their 2018 state and local taxes in 2017. An IRS spokesperson pointed out taxes are deductible only if they have been billed. I think you could get away with overpaying your state income tax last quarter estimate and you certainly wanted to make sure your last quarter estimate was paid in December. For the next year, hysteria will reign in the tax world. In the end, we will all get used to it.
Having spent nearly 45 years in tax practice, it may sound a little disingenuous, but I think the answer to most of these questions is best answered by CPAs. Most Americans are focused on their own lives. They want to know what this legislation does to their wallet. A Harvard professor may expound in grand language about the pros and cons of such a momentous change in tax policy but never has done a tax return. CPAs from Manhattan to Beaver Island will be sitting down with the financial leaders from General Motors to Joe's Bar and Grill to figure this out. Those who do the work will see the reality of the effect on the business community long before the educator has finished planning what to do over the summer. If you want to know the reality of Vietnam, ask someone who was there. If you want to know the reality of tax policy, ask someone who actually deals with it in his or her business life.
Another issue on who to listen to is an observation on all the super ads running regarding fighting the IRS. First off, don't do anything knowingly that puts you in the IRS’s crosshairs. If you get into trouble with the IRS, the first person you want to talk to is the person who signed the return. The point is to deal with people you know. I guess the first thing to do is use high-quality local tax practitioners who have a good reputation with the IRS locally. There was a man bragging at a gathering one night about how he had gone to the IRS with his books. Supposedly, he threw his records down on the desk of the IRS agent and told them to call him when they had it figured out. A woman asked me if that was a good idea. I told her it was like going to John Ball Zoo, poking the big orange-and-black-striped 500-pound cat with a long sharp pole and then opening the door to the cage. You won't have to call, “Here, kitty.” It will get to you pretty quickly without beckoning. Be professional. Do it right in the first place.
Advertising is not cheap nor are the services of the sponsors. I am a strong advocate for using the appropriate law, accounting firm, etc. You don't use a bulldozer to dig for worms. You don't need a $400-per-hour professional for a simple tax dispute. You do if fraud or extreme complexity are the issues. The ads used for tax defense firms use exceptional examples to get your attention. The school teacher who owes tens of thousands in back penalties and interest must be an interesting case. How did a school teacher get into that mess? If your tax preparer does not feel they can handle the magnitude or technical difficulty of your situation, get a referral from someone you trust for a higher level of service. Win or lose with fees being what they can be, surrender may preferable to fighting and losing. The tax specialist in a large firm may cost you more than the dispute warrants. Before antibiotics, they administered cyanide to treat syphilis. It can be like that. An attorney or CPA without the level of experience for the complexity of the case may cost you much more than the cost savings. Think, ask questions and speak up if you feel you are not getting the correct level of service.
What will be the economic effect of all these changes? Nobody really knows. The Reagan tax changes most likely brought on the savings and loan crisis. I am still trying to figure out how they are going to determine what business income in a pass-through entity for tax reduction will look like. That, like the earned income for self-employment tax in S corporations, may be a huge audit issue in future years.
Calm down. Get your year-end data in quickly to prepare for what effect the changes will cause in 2018. Be a good scout regardless of gender and be prepared.
Paul Hense is the retired president of local accounting firm Hense & Associates and past chairman of the Small Business Association of Michigan.