Families with young children may see lower tax refunds, says CPA
Other changes include the annual energy credits, says John Tompkins of Tax Forward.
JAMESTOWN – Probably one of the most significant changes this year with taxes is related to COVID stimulus money, said John Tompkins, managing CPA at Tax Forward in Jamestown.
Much of the program is now gone, he said, and some people will see lower refunds as a result.
“The major people that that’s going to affect are people with children,” he said. “Young people with small children, those small children being in day care, those folks are going to be seeing a big change in their tax refunds, in their tax returns this year.”
Also new is that starting in 2023 for the 2024 tax year, the Inflation Reduction Act provides new energy credits for people’s homes, which were historically capped at $500 in your lifetime, Tompkins said.
“And now these new limits of these tax credits are annual,” he said. “So you could fix your windows, basically do energy-efficient improvements to your home and now you can do that year after year and still take advantage of these credits.”
Tompkins said the advantage of having a professional do your taxes rather than using a tax preparation platform is that a professional provides that human element that software will not.
“The reason I would go to a professional is because that is their day-in and day-out job," he said, and with that experience is able to guide any individual.
He said a lot of tax preparation platforms have become good at asking questions but they aren’t good at interpreting a question to the average person.
“A very good example is around children and filing status, head of household,” he said.
He said a tax professional is going to be able to help a person navigate that better than software will.
Tompkins said talking to your professional can help with tax planning as well.
“... it’s so critical to talk with a tax professional about your year and about what you’ve been doing and about anything you can do going forward,” he said. “It’s simple things like how do I fill out my W-4 at work. Am I taking the right viewpoint of paying for child care, am I contributing enough to retirement, are there things that a person’s doing now that they could change for 2024 that would impact their tax return.”
He said one of the best questions he gets from clients is “Is there anything that I’m doing that I should be doing differently?”
Tompkins said tax planning can also be beneficial for small businesses.
“So we’re in what I call the ‘golden era’ of paying tax where our tax rates are at one of the all-time lowest, especially for small businesses, especially for our ag community, and I look to the future and say, ‘Well, when does this end?’” Tompkins said.
In 2025, a large portion of the Tax Cuts and Jobs Act sunsets, he said. He said if that occurs that will result in "a huge change” for people’s taxes.
“Especially small businesses and agricultural,” he said.
In order for what’s currently in place to continue, Congress would have to pass new laws, he said, and there’s no way to predict what will happen.
“I think we can only ever predict with the information we know today and plan on with the information we know today,” he said.
But there is also a lot of opportunity now to plan for small businesses, he said.
“We do that all the time,” Tompkins said. “It’s super prevalent in the ag industry.”
He said almost all of his clients who are farmers do some tax planning in the fall, and thinks it would be good for small businesses as well.
"To take a look at what’s going on before the year ends while we can still do something. ... To have a long view of what’s going on and what could down the pipeline or what is projected to come down and how do we mitigate that, ..." he said.
People who bring their tax information to professionals should bring all of the documents in at one time to make it easier for them and their tax professional, Tompkins said.
“One of the big struggles we have is what I call piecemealing where somebody brings in one document at a time,” he said.
Tompkins noted that there are not as many tax professionals in the business as there used to be and that could affect people’s ability to get the professional service they need in the future.
“We’re hearing that coming through school, the numbers are getting lower and lower,” he said. “So at some point here in the next decade, I think there’s going to be a critical turning point where there’s not enough people doing this to service the people that need it to be done. So with that, I would say find somebody now if you think in the future you’re going to need somebody because a lot of places in Jamestown may or may not be taking any new clients. And we’re already seeing that.”
The Inflation Reduction Act included funds for the IRS, some of which would be used toward hiring new agents for enforcement and taxpayer services. That portion of the bill was recently rescinded by House Republicans but is not expected to pass in the Democratic-controlled Senate.
Tompkins said if more IRS agents are hired, it would be welcome because the IRS would have more staff to provide assistance.
“One of the unpopular opinions in the accounting industry, I think with CPAs especially, is that we’re not concerned about more IRS agents,” he said. “I’ve heard that number 87,000 new IRS agents so many times from so many people and really, if you’re working in this industry, we’ve actually wanted that for some time. We don’t want people to get audited but we want taxpayer assistance, we want to be able to call the IRS and actually get a resolution and not have to take two years. And right now there’s not enough IRS professionals or agents in order to service all the new tax law that’s come out. Basically, there’s just been a big shortage at the IRS and it’s delayed everything out so long and a lot of professionals welcome” being able to reach an IRS employee if they do implement it, he said.