Accountants in private practice usually avoid wading into politics, at least publicly. They can’t afford to, their clients cross partisan lines.
That’s why tax accountant Anson Avery emphasized he had no partisan leanings in a letter to the editor on the “Tax Cuts & Jobs Act of 2017” (TCJA). He’s been fascinated by the numbers for over 50 years, did his own analysis, and concluded the TCJA mostly benefited the middle class. Dueling letter writers raised questions. So what numbers was Avery using, and were the results replicable by other accountants?
Avery readily provided his raw data for peer review in a packed three-ring binder. He proudly runs a “20th century paper-more, not paperless office,” but like all accountants he uses software programs to create returns. He and a colleague ran simple scenarios for 30 different typical households, generating 1040A forms. For all 30 returns, Avery assumed the standard deductions. His results showed every household type at every income level saving money under the TCJA.
Paul M. Fruci, president of Fruci & Associates, one of the oldest accounting firms in Spokane, has known Avery as a friendly rival for years. Fruci said people tend to be most interested in how the TCJA affects them personally, then react based on their politics. “Some people will pay more, some will pay less … for simple returns, people are saving money,” said Fruci, assuming no changes in circumstances from 2017. He sees the tax reforms as designed for a statistically average W-2 wage earner living in an apartment or modest house.
Large accounting firms don’t usually see those simple returns with no itemized deductions. A young CPA working with mostly rural clients skimmed the Avery analysis, but declined to wade into a politically hot battlefield while she is building her practice. She confirmed it mirrors what she is seeing in her own client base and concluded “everyone’s tax situation is different, but overall I am seeing benefits from the TCJA.”
Suzanne Weathers, of Weathers & Associates Consulting in Spokane with 14 years’ experience in tax preparation and representation, undertook a more detailed peer review. The IRS has been issuing new rules and interpretations since Avery ran the original analysis earlier this year. Weathers ran the same income numbers for the first seven of the 30 scenarios, married filing jointly with two dependents. She stopped when she found inconsistent preparation assumptions, making the percentage savings comparisons across all scenarios inconsistent.
What she did find was additional savings. Avery’s analysis did not include the child tax credit or the earned income tax credit available for the wage earners in $10,000 to $80,000 household scenarios.
“Due to increased allowances for both the CTC and EITC, each of these income ranges with dependent children would benefit significantly,” Weathers said.
Middle class in the Spokane and Spokane Valley metropolitan region for a family of four falls between $50,000 to $140,000, according to the Pew Research Center calculator. About 52 percent of area households are considered middle-class.
Avery’s hypothetical high income couples at $100,000, $200,000 and $400,000 earned qualified business income from a business or profession. The QBI rules have changed and are still changing, but these high earners are likely to see less benefit from the tax reforms than Avery predicted, according to Weathers.
“The IRS is still clarifying many areas of Section 199A,” Weathers said. “It’s the biggest change to the tax code since 1986 and it’s been keeping all professionals focused this summer.”
One goal of the TCJA was tax filing simplification. And for those with simple W-2 income, filing a 1040A Short Form or 1040EZ with the new standard deduction will be simpler. It will also simplify the job of the IRS, with fewer itemized returns to oversee. But it may not cut into the demand for tax preparation help.
H&R Block does a ton of EZ returns, according to Janet Wise, a tax preparer, instructor and Spokane office manager.
“Some people are just terrified of the IRS and like to know they have backup if there’s been a mistake,” she said. “We’re there to assist, and we’ll cover penalties and interest.”
Avery had one more conclusion from his TCJA analysis. He remembers when the IRS still had a reputation for being fair instead of a source of fear. He thinks it’s time to clean house at the IRS and change a culture relying on fear for compliance.
Subscribe to the Morning Review newsletter
Get the day’s top headlines delivered to your inbox every morning by subscribing to our newsletter.