Since Republicans assumed office and full political control in 2017, one of the first critical steps they took was to pass the most far-reaching tax code reforms in decades. Led by President Donald Trump, the Republicans, or the Grand Old Party (GOP) as they are known, went ahead to pass a $ 1.5 trillion tax cut.
The new tax laws provided deep and long-lasting tax cuts for business entities, including a corporate tax rate which has been set to 21%, down from the current rate of 35%. The bill also provided short-lived tax benefits for low and middle-income American citizens, including reduced marginal tax rates, and new 37% top tax rate for wealthiest Americans, down from 39.6%. Despite all of this, one question remains, what will the new tax law mean for new accountants and current accounting majors? Will accounting firms be left out of such reforms?
The Republican tax plan made major changes to the tax code. The plan lowered household rates, raised the standard deduction and child tax credit, eliminated local and state tax deductions, and created new tax rates for âpass-through businesses' that are owned by rich persons such as Donald Trump to pay less than 25% tax as opposed to top individual rates.
Furthermore, the sweeping changes in tax code also lowered corporate rates while eliminating a couple of tax breaks.
Implication on the Accounting Profession
The accounting profession is undoubtedly one of the most stable and well-paid jobs in the United States. Are you an aspiring accountant about to graduate and hoping to run an accounting firm in the United States? Are you an accounting firm located in the U.S. and running a successful business? If this is the case, then you must be prepared to handle the new changes in tax codes recently passed by the Republican Party. You should not freak out, the changes, if handled well, will work for you. Here is a breakdown of how the new tax laws could affect new and current accounting majors:
What Comes Down, Will go Up
The Republicans control every arm of the government. Since assuming office, led by Donald Trump, the Republican Party went ahead to pass one of the most controversial tax reforms that would see sole proprietorship businesses being accorded 20% tax deductions on their businesses. As an accountant, the diverse nature of the profession and the income one gets will easily cover this deduction without feeling a thing.
The hope is that this form of deduction will give some financial breathing room to small businesses. It is important to note that service-type businesses such as accounting firms will enjoy this deduction too. However, accounting firms making more than $315,000 per year are left out of the deduction.
To new accountants and accounting majors making more than $315,000 a year, new tax laws passed by Republicans mean that they (accountants) have to be taxed at the current normal rates.
Current accounting majors just about to graduate from college have to be aware that once they graduate, they will also be taxed based on the current rates. Even if they are self-employed at under the $315k threshold, the lower tax rate will indeed be phased out by 2025. Of course the same applies to accountants already in the profession.
As we can see, some accountants will be able to benefit from lower taxable income passed by the Republican Party, while others will not, all depending on how one gets paid. One thing is for sure- the new tax reforms bring the essence of accounting to the American table as many will rely on the need for accountants to make sense of everything. This will, of course, increase the marketability of accountants.
Increased Client Advice
Changes in tax codes recently passed by the Republican Party means that new and current accountants specializing in taxation will have to offer sufficient advice to clients on what they should expect or what the new laws in taxes mean to them. In the aftermath of the Republicans passing the tax bill last month, news and some publications circulated about how accountants – both current and new to the profession – will benefit from a bill that ended up failing to keep up with the GOP's promise to make changes in tax code.
Apparently, the Republican tax plan is seen as some form of headache to many professions. The law passed by Republicans requires potential and current accountants to give all information to their clients on what the new laws really mean. As an accountant, you will have to use your knowledge to explain the financial implication of the tax reform. This will mean that you will get more clients.
Dealing with clients who are aware of the new laws is an exciting experience, and under the new laws, a current and potential accountant must be ready to engage their clients fully and with vigor to give them the best services that take into account the recent tax changes.
Additionally, the law now requires accountants to be vigilant and detailed when giving information. In fact, current and new accounting majors are required to offer or avail sufficient client advice on matters to do with their finances.
Therefore, if you are currently pursuing accounting as a profession or already in the business, you will be required to advise and answer any question(s) arising from your clients on what the new tax plan passed by the Republicans mean to them. Hiding such critical information could even lead to criminal charges and other negative consequences.
Beware of Accounting Overwork
Even though a significant number of potential and current accountants may feel satisfied with the current tax laws, the upcoming tax season promises to be busier than ever before due to a surge in clients and potential accounting overwork. A silver lining perhaps though, as this will, in turn, equate to more profits.
Increase in working hours mainly from clients wanting to know how they can go about lowering their tax burdens may, in the long run, have beneficial effects to the accounting career as it will be required by many people.
With the new changes in tax code, cases of increased profits and more satisfied accountants will be on the rise. The bill means more work for accountants as hundreds of clients in need of advice will be frequenting accounting offices in addition to huge paperwork that they will have to deal with.
Before passing the controversial Republican tax plan, Mr. Trump was of the opinion that his "dream" was to do away with tax preparation services and put them out of business by simplifying the tax code. Even though the reforms will negatively affect many people (long-term), ironically, accountants will be the winners in the end.
The confusion and uncertainty will most definitely create a number of new opportunities to the field of accounting. To new and existing accountants, more money should be expected.
Adjustment of Deferred Liabilities and Tax Assets
As noted earlier, a majority of corporations will definitely benefit from the recently passed tax cuts. However, most of these corporations have either deferred tax assets that accumulate on the balance sheet when firms take tax losses or have a number of liabilities which organizations have underpaid taxes on assets that have depreciated.
To accountants, this is a new challenge that they will have to face. Both new and practicing accountants will have to work hard to make sure that such numbers are quickly adjusted, with those delving into financial advice being compelled to remind their pool of clients about the problem with earning numbers that are expected to appear this year. Making such adjustments will be advantageous for the accountants who will take up the challenge.
State Tax Policy
Whether you are in a state that voted for Donald Trump or Hillary Clinton is no matter, you will be affected by the Republican tax plan in some way. The Republican Party tax policy limits local and state tax deductions, the proposal, known as SALT caused quite a stir amongst state governments. Though again, this is can have a positive effect on your income as an accountant; count on clocking hours re-assessing clients financial situation to in turn help them save some cash that would, otherwise, have landed in the IRS's pocket.
In fact, accountants will have to convince the general population that the new tax code will not favor any group. It is said that the new reforms will be punishing higher-tax blue states while having a soft spot to lower-tax Republican red states. For this reason, accountants in higher-tax states will have to do a lot of work so as to help their clients understand this policy and work the best way to control the negative effects.
Some of the potential strategies adopted include moving assets from higher-tax states to lower-tax states, and most importantly, diverting people's income into retirement assets. Here, accountants –both new to the profession and current ones – will have to face a more challenging task of assisting their clients with the limitation of such deductions.
New Tax Bill Could Affect Accountant's PPC Accounts
The Republican tax plan that brought sweeping changes in the tax code may end up affecting accountant's AdWords accounts. Sure, maybe an odd consequence of all of this, but something to really consider for the self-employed Accountant relying on local search engine traffic none-the-less. You see, regardless of party affiliations or political leanings, Certified Public Accountants and potential accountants will need to prepare for the impending increase in subsequent clicks and impressions. As news, both fake and real, permeates the internet, a majority of Americans will enter into panic mode and begin looking for answers to a couple of their tax-related questions.
AdWords give room for advertisers to create a list of negative keywords that can be used in any given campaign. Chances of accountants, both new and potential ones will gain for the huge number of people who will be clicking and in need of their services.