The Tax Cuts and Jobs Act (TCJA) is in full effect during this tax season. Although we may have learned a lot after going through last year’s tax filings, many tax preparation professionals are still struggling to correctly apply the nuances of this complicated piece of tax reform.
Part of the difficulty is the fact that the law impacts every state of life. For example:
- Childhood. The TCJA changed how we fund education. Taxpayers can now use 529 plans to pay for primary and secondary school with up to $10,000 per student, per year withdrawals — tax free. Clients with children should also note the new law eliminated the dependency exemption for a child.
- Adult. The new law also changed the government taxes income and other earnings. The tax rates on individuals were generally reduced and the law also created an opportunity for tax-free or deferred capital gains on qualifying investments.
- Senior. The TCJA also impacts those getting ready for retirement. Taxpayers no longer have the ability to recharacterize Roth IRA conversions. This means those who convert a tax-advantage retirement savings plan to a Roth IRA in 2019 can no longer undo the conversion if the account begins to decline after the conversion.
Tax preparers are wise to become familiar with these implications and take care to aid clients wisely. A failure to do so can result in allegations of wrongdoing and an official investigation. Those who find themselves the subject of such an investigation have options. An attorney experienced in representing tax return professionals can help.