By Steven Brettholtz, CPA, CFF

The IRS is now back up and running.  However, the recent government shutdown had an undeniable impact on operations at the IRS. During the shutdown, the IRS suspended all audits, examinations, and appeals, except in cases where the statute of limitation was about to expire. They now need to catch up on those suspended activities while managing the busiest period of the tax calendar. IRS employees returned to work at the end of January facing a backlog of correspondence estimated at 5 million pieces. And the Tax Court has had to reschedule trial sessions canceled during the shutdown. One report estimates it will take a year for the IRS to recover.

That does not mean taxpayers should be lackadaisical about submitting their 2018 taxes. The IRS is processing 2018 returns and tax refunds and has said it will issue the first refunds this month. The agency urged taxpayers to submit their tax returns electronically for speedier processing.

What you can expect

The most common issue taxpayers may experience this season is a slower response for those needing assistance. Unfortunately, many taxpayers grappling to understand the full impact of the Tax Cut and Jobs Act (TCJA) may find long wait times at taxpayer assistance centers and helplines. In addition, the time it takes to resolve tax issues through appeals and responses to IRS action will likely be longer.

There is some speculation refunds will take longer this year, although that remains uncertain. And of course, it is possible that the government shutdown will resume if no federal funding agreement is reached by February 15. A second shutdown will cast greater uncertainty on the IRS’s speed and taxpayer assistance capabilities.

Our recommendations

In light of these changes and challenges, we recommend taxpayers gather information necessary to prepare their taxes as soon as possible. At Myers, Brettholtz & Company, we will be working diligently with our clients to determine if deductions they’ve taken in the past are still applicable and what new deductions are now available to them. Some taxpayers who previously itemized may find that electing the standard deduction will be more beneficial this year or that they need additional documentation for certain deductions.

Here’s a short list of changes affecting individuals you should note as you begin gathering your tax documents together:

• The threshold for the medical expense deduction is lowered to 7.5 percent of adjusted gross income for regular tax and Alternative Minimum Tax purposes. It reverts back to 10 percent in 2019.
• The charitable contribution deduction limit is increased to 60 percent of AGI. There is no deduction if the contribution secures athletic event seating. Taxpayers will need contemporaneous substantiation for any contribution of $250 or more, even if the charity has reported the contribution to IRS.
• You must document expenses to improve, buy, or build a home if you plan on deducting home equity interest. If not used for these documented purposes, the interest is not deductible.
• You will need the social security number for every qualifying child to claim the increased child tax credit. Don’t forget the new $500 deduction for other qualifying dependents who are not qualified for the Child Tax Credit.
• The Kiddie Tax is now taxed at the estate and trust tax rates.
• An increase in the AMT exclusion amounts and revised tax rates may mean that fewer middle-income taxpayers will be caught by the AMT, but more higher-income taxpayers will be affected.
• There is a new three-year holding period for carried interests to obtain long-term capital gain treatment.

For businesses:

• There are higher expensing limits for capital purchases under Code Sec. 179 and bonus depreciation.
• There is no deduction for entertainment expenses. The 50 percent deduction for meal expenses survives if the taxpayer can identify the meal expense separately from the entertainment expense.
• There is a new credit for paid family and medical leave.
• There is no longer a deduction for litigation costs advanced by an attorney.
• Corporate AMT has been repealed.
• There is a 20% deduction for qualified business income for certain pass-through entities.
• There are new limits to deductible interest and executive compensation deductions.

We look forward to working with our clients through another busy and successful tax season. If you are unsure about any of the revisions included in the TCJA, or are in need of tax preparation or business consulting services, don’t hesitate to call our office.

Steven Brettholtz is president of Myers, Brettholtz & Company, PA. His decades of accounting experience include numerous assignments in all phases of taxation for individuals, businesses entities and non-profit organizations. He is a member of the Florida, California, Hawaii, Nevada, New York Accountancy Societies, and the American Institute of Certified Public Accountants (AICPA).