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Updated April 2022
By Steve Jacobs
Many people do their own taxes. It can be a real badge of honor to take tables and charts filled with various amounts — and your shoebox full of receipts, pay stubs and assorted financial ephemera from the year — and synthesize them into one bottom-line number.
Tax filing programs, such as TurboTax, have become more sophisticated, and may offer more personalized assistance if needed. In addition the IRS offers guidance on how to choose a tax preparer.
There’s also nothing wrong with taking that shoebox and bringing it to a CPA so they can handle it. The most important thing is that, whichever method you choose, you get it all done by the deadline.
Even if you don’t follow the news closely, you’re probably aware that something happened with income taxes in recent years. That something was the Tax Cuts and Jobs Act (TCJA) of 2017, and it made several significant changes to the way we file our income taxes in the United States.
“These changes are still causing plenty of adjustment come tax season,” says Robert Steen, director of retirement advice at USAA.
But is this adjustment enough to merit going to a professional? We’ll discuss a few scenarios where, no matter what you did in the past, you might end up wanting a little more help due to the changes – as well as one scenario in which you should be just fine without assistance.
Small-Business Owners
Small-business owners are already fully aware of the complications that can arise from tax law. With the TCJA, their filing has become slightly more difficult based on a distinction between C-corps and S-corps.
Here’s a quick refresher on the difference between these two: In a C-corp, owners pay personal income tax on profits and businesses pay a corporate income tax. In an S-corp, also known as a pass-through entity, the business itself isn’t taxed, but the income is reported on the owner’s personal tax returns. An S-corp must have fewer than 100 shareholders, and it’s the form preferred by many small-business owners.
Under the new rules, C-corps have received a one-size-fits-all tax rate of 21% at any income level, down from the variable 15-39% rate that existed previously. S-corps must still pay the individual rate, minus a 20% deduction for business expenses. If the business income is high enough and will cause enough strain to the owner’s tax burden, there may be less benefit to remaining an S-corp.
This is a lot of information to take in, on top of the stress of running a small business. Ultimately, if you’re a small-business owner trying to find a way to relieve some of your tax load, it may be worth talking to someone about changes in the TCJA.
Trust Planning
Income generated from trusts is now taxed at a much lower rate. Many people create irrevocable trusts to avoid owing estate taxes, and they can now find themselves in a situation where their trusts are starting to reach the highest bracket and have created an income tax problem.
We won’t get into the deeper details involving trusts here (that’s a topic for another day), but reevaluating a trust with an estate planning attorney who has a tax background might be a good decision in light of the TCJA.
Charitable Giving
Donating to charities – and reaping the tax benefits – is a way of life for many people. With the increase in the standard deduction that came with the TCJA, many people no longer itemize deductions, which is a requirement in order to deduct larger charitable contributions. Nevertheless, for 2021, non-itemizers can deduct up to $300 for cash contributions to qualifying charities, or $600 for married couples filing jointly.
Retirement Savings
One area where you might not need any help is in saving for retirement, which has actually become somewhat simpler.
“Lower tax rates mean that more money can be directed toward retirement savings,” Steen says. On top of that, he continues, “Saving to a Roth account could be more attractive, given current tax rates are pretty low and deductions aren’t as valuable at the moment.”
This is because when you convert to a Roth IRA, you’re taxed at your current rate, which, as mentioned, is currently fairly low.
One thing that’s clear is that the TCJA has shaken up several traditional notions about taxes. When in doubt, it always makes sense to reach out and get help.
To get the forms, discounts and answers you may need at tax time, visit the Tax Center.
The preceding discussion is not tax, legal or estate planning advice. Consult with your tax, legal or estate planning professional regarding your specific situation.
The USAA Perks program is provided through USAA Alliance Services LLC, a wholly owned subsidiary of USAA. USAA Alliance Services contracts with companies not affiliated with USAA to offer their products and services to members and customers. USAA Alliance Services receives compensation from these companies based on the sale of these products or services. When you purchase a product or service from one of these companies, that company is responsible for protecting your data and its processes and procedures may differ from those of USAA. These companies have sole financial responsibility for their products and services.
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