Two Capital Region tax advisers say three things are clear about the new federal tax structure rushed into effect:
Many New Yorkers will pay more as individuals.
Many New Yorkers will pay less as business owners.
Many accountants will be busy trying to help them figure it all out.
With the final details of the tax plan only a few hours old, strategies for dealing with its impacts were still being contemplated Wednesday. But the main impact of the tax reform in New York is exactly what was expected:
New York is a place with high state income and local property taxes, so taxpayers here will be hurt by the new limit on deducting such taxes.
Accounting firms Staff Ciampino & Co. in Albany and BST & Co. CPAs in Colonie say they have been busier than usual in recent weeks with contingency planning.
“December is usually busy as it is because we do a lot of year-end planning,” said Neil Goca, tax partner at Staff Ciampino. He said the firm doesn’t have a one-size-fits-all strategy for the 2,800 tax returns it prepares each year.
Even something as simple as paying 2018 property taxes in 2017, so as to claim them as a deductible expense while it’s still possible to do so, may not be a good idea if it exposes the taxpayer to the Alternative Minimum Tax.
“Where it may make sense for one person to do it, it may not make sense for another,” Goca said.
On the balance, individual New Yorkers appear to come out worse from the changes, he said.
“My gut would tell me the winners are the large corporations,” Goca said. “As far as individuals go, the larger the amount of the deductions lost, the more you got hurt.”
Many Americans have traditionally taken the somewhat tedious step of itemizing their tax deductions because it cut their income tax bills more than taking the standard deduction would. The changes enacted Wednesday will steer more Americans toward the standard deduction.
Dan Ciampino, managing director of the firm, said if nothing else, taking the standard deduction eases record-keeping and reduces the likelihood the IRS will run a tax audit.
Beyond the impact on individual taxpayers, he said there could be a secondary impact on the real estate industry, if homebuyers base their decisions on reduced deductions. It also could affect the nonprofit sector if charitable giving decreases — accountants see donors motivated by both philanthropy and tax credits. Finally, the tax changes could fundamentally affect the economy, which is the Republicans’ stated goal for the whole process.
Left to figure it all out are lawyers, accountants, IRS agents, computer programmers and individual taxpayers.
“There’s a big learning curve to it,” Ciampino said. He and Goca have a combined 73 years in accounting.
As much as the package of tax changes affects individual New Yorkers, the changes for businesses are bigger, he said. So BST is strategizing with its clients on how to proceed.
“It’s been a little crazy, we get involved in a lot of year-end planning,” Cole said.
The significant changes in the tax regulations on taxed and untaxed businesses and the people operating them makes a range of new strategies possible, he added.
“There’s going to be a lot of focus on which is the best entity and where you get the most bang for the buck,” Cole said, citing as an example pass-through businesses — those that pay no taxes but whose owners are taxed on the business revenue.
It might be best to convert an untaxed corporation to taxed because corporate tax rates have been slashed, or it might make sense to go in the opposite direction because a tax deduction has been added for owners of untaxed businesses.
“This is going to add more complexity,” Cole said.
BST’s advice for business owners:
- Try to accelerate expenses into 2017 and delay income into 2018.
- In the first quarter of 2018, consult with a tax expert about converting from a taxed corporation to an untaxed pass-through, or vice versa.
BST’s advice to individuals who itemize deductions:
- Pay 2018 property taxes in 2017 if the municipality allows it.
- Consider making 2018 charitable contributions in 2017.
- Remember when considering purchase of a house that owning it may become more expensive, thanks to changes in itemized deductions.
- Be aware that interest paid on home equity loans no longer will be tax-deductible, even for existing loans.