For people even mildly inclined toward tax nerddom, the continuing discussions in the Senate and the debate that already took place in the House of Representatives are the best kind of spectator sport.
But if you don’t find 529 accounts fascinating or wonder about beer taxation or why hedge fund managers pay so little in taxes, then you want to know the answer to only one question: What does it mean for me?
If only that were easy to figure out. We know that nearly a quarter of households with incomes between $100,000 and $500,000 would see their tax bills go up next year under the Senate’s proposal.
Compared with current law, the House bill, which was passed Thursday, would raise personal federal income taxes on California, New Jersey, New York and Maryland residents by $16.7 billion in 2027, according to an Institute on Taxation and Economic Policy analysis. Florida and Texas, however, would get $31.2 billion in cuts.
Still at a loss? If you’re hoping that TurboTax will rerun your 2016 data or scan your 1040 and spit out constantly updating projections based on the House bill or the evolving Senate proposals, its owner, Intuit, will not do that for you.
At first, TurboTax’s spokeswoman, Lisa Greene-Lewis, told me via email that it was “premature to speculate or second guess the decisions policymakers will make.” When I pressed further, wondering about the people who want to be well-informed citizens and decide whether to cheer or jeer their elected representatives while it might still make a difference, she got on the phone and simply told me that the company would be creating only tools based on current laws.
And so, we turn to the accountants. Pity them, because for at least the next month, theirs will be a world of what-ifs and if-thens. Already, many are receiving multiple messages each day from clients.
Some of the callers are merely schemers. Jeffrey Levine, who works in Garden City, N.Y., heard from a client who wanted to pay him next month for next year’s tax return preparation. Why? Well, the House bill proposes to eliminate deductions for tax preparation, so the client wanted to slip in the expense before the deduction disappeared. Indeed, the client could save about $300 by prepaying. “So, not a terrible idea,” Mr. Levine said.
Then there are the accountants who work with elderly clients. What should they advise people who have lots of medical expenses and may lose the deduction for them if the House has its way? Ruth A. Sattig Betz, whose offices are in Farmingdale, N.Y., has clients who receive taxable income from pensions or individual retirement accounts. They then turn around and use that money for nursing home or in-home care. Without the deduction for those expenses, they could face a much higher tax bill, run out of money sooner and end up on Medicaid faster (thus costing the government money instead of feeding it more tax revenue).
Could Ms. Sattig Betz’s clients prepay many months of expenses in late December if the House proposal prevails? Perhaps, but they’d need to generate more income to do that by taking more money from their retirement accounts. “I haven’t seen a simplification act that is simple in my over 40 years as a C.P.A.,” she said.
Home buyers and sellers face different decisions. What does an accountant tell a widow in California who is moving to assisted living and has her house on the market? If her dwelling is at a price point where the buyers need a mortgage that would no longer qualify for full interest deduction under the House bill, the house could be harder to sell.
So should she take it off the market during the holiday season, when sales typically dry up? It’s hard to get good guidance from the House bill. It suggests that anyone getting a mortgage after Nov. 2 would be subject to its proposed $500,000 loan cap, but who knows how that might change or if that quirk will survive a trip to a House-Senate conference?
Gina Chironis, who works out of an office in Irvine, Calif., told that widow to keep the house on the market during the holidays and consider dropping the price a little amid the tax madness. “Where there is confusion — where decision-making is made more difficult — people will tend to avoid making decisions,” she said. Hence the desire to keep the house on the market in case anyone decisive does turn up for an open house.
Many business owners, who are wondering how far their taxes might fall if they qualify for newly lowered rates or higher deductions, have asked their accountants to march line by line through their tax returns to see how they would fare next year. “Tedious, I know,” said Gary Sozzi, a New York City accountant who has done this for two clients recently.
Both clients would come out hundreds of thousands of dollars ahead under one scenario. Hooray! Were they going to hire new employees or raise current employees’ salaries? Heck, no! According to Mr. Sozzi, they feel they’ve paid way too much over the years, so they’d keep the money for themselves.
Upper-middle-class wage earners in states with high income taxes, meanwhile, face their own decisions. Should they prepay some taxes or accelerate charitable contributions? It would depend on their circumstances. Matt Talcoff, whose colleagues at a Boston-based firm have been talking to many clients in recent days, has found that the old accounting adage about always deferring income and accelerating deductions may not be true for some people if any bill passes.
Consider the people who will pay the alternative minimum tax in 2017 and are worried about the possible consequences of losing state and local tax deductions in 2018. Some of them may want to accelerate income into 2017 and willingly pay the A.M.T., because they may pay more taxes on that income in 2018 depending on the legislative outcome.
So is Mr. Talcoff’s firm building more spreadsheets to account for the myriad possibilities? Rerunning 2016 returns using new assumptions as the tax bills change? Spitballing on the phone? “Yes to all,” he said. “I’d hate to wake up a year from now and say, ‘Look at what we could have done if we’d just thought through these proposals before.’”
The challenge now is the timing. Legislators want to have something to show for 2017, so the race is on to put a tax bill on the president’s desk before the end of the year. If it happens, it may come about just days before the year is over, which will leave very little time for people to make any moves that might save them money.
Sure, this headlong rush to pass something may collapse under its own weight and complexity. But if it doesn’t? You’d better block some time on your accountant’s calendar for the third or fourth week of December. I already have, just in case.