As many if not all of you know, on December 22, 2017, the Tax Cuts & Jobs ACT (TCJA) was passed to “simplify” the tax code. With this Tax Reform being the largest revamp of its kind in over 30 years, it has significantly changed both individual and business entities' income taxes. In addition, it will also affect other facets of the profession--beginning with you. If you're a current accounting major, you probably want to know how the Tax Reform affects you professionally, academically, and as a CPA Exam candidate.
Luckily, Roger Philipp, CPA, CGMA, CEO of Roger CPA Review, discusses these points and more. Watch his video or read his article below to learn more:
Tax Cuts & Jobs Act Overview
In a nutshell, this new Tax Reform is:
- Lowering the corporate tax rate from 35% to 21%.
- Increasing the standard deduction from $6,000 to $12,000. If you're married and filing taxes jointly, that's a standard deduction of $24,000; Therefore, many people who used to itemize through Schedule-A will no longer need to do so.
- Increasing the child tax credit from $1,000 to $2,000, and changing the phase out threshold up to about $400,000. This would allow most Americans to qualify and receive the $2,000 benefit, which will help stimulate the economy.
- Limiting itemized deductions on the Schedule-A. A good way to remember this is through a mnemonic I commonly use to teach, which is “COmMITT this to memory”:
- C – Charity
- Om – Other miscellaneous
- M – Medical
- I – Interest
- T – Tax
- T – Theft & casualty
This involved a variety of areas like charitable contributions, which they increased to 60% from 50% of AGI for cash donation; property taxes and sales taxes; and state taxes, which are now limited to $10,000 per return. In addition, mortgage used to be a million with equity and is now limited to $750,000 of principle, and casualty losses are now federal disaster areas only.
- Creating a new 20% Qualified Business Income deduction to lower tax rates for owners of certain pass-through entities & sole proprietorships (S-corps/P/s). This is probably one of the biggest changes we've had throughout the entire tax code in the past 30 years. So it not only significantly changed individual taxes, but also business entities, which a lot of you may be studying, or have studied in school already.
So let's talk about how it affects you, the accounting student.
While it may seem that this Tax Reform is mostly relevant to individuals and businesses, it of course also has some bearing on your future as an accounting professional. Here are some ways this Tax Reform will benefit you.
- Increased marketability. The reliance upon accountants to make sense and to understand all of these new accounting tax changes has increased. This not only means more accounting jobs, but accounting jobs that are in high demand--especially for those of you who may specialize in taxation. It also prepares you to enter a career where you'll be offering this amazing advice about how all the new tax laws will affect your clients' finances, as well as their financial statements.
- Updated curriculum. If you haven't completed your tax classes in school yet, then you might decide to hold off a little longer, or at least as long as possible until the curriculum is updated to reflect the Tax Reform. Normally, a publisher is about 1 to 1.5 years behind, which means that current textbooks still cover the old rules. Most universities are working on ensuring that the accounting textbooks are aligned with the new tax regulations, but until that happens, it might be your best bet to wait on taking your tax courses until they do.
- Increased value of the CPA designation. Obtaining your CPA designation is more valuable now than ever before. Being a CPA in conjunction with specializing in tax will provide you with a variety of career opportunities—especially if you want to go into public accounting, which now typically requires a CPA designation due to the increase in demand. However, even if public accounting isn’t for you, having those three letters behind your name will set you apart from other job candidates. It also looks great on your resume and can give you priority over others.
Study for the CPA Exam with Roger CPA Review – Free for 2 days
If you’re planning on becoming a CPA and already completed your tax classes…
Our recommendation is to sit for the REG section of the CPA Exam now since the changes brought forth by the Tax Cuts and Jobs Act means monumental changes to the REG section of the CPA Exam. The AICPA announced that these won’t be eligible for testing until January 2019, so we highly suggest sitting for REG now to avoid having to relearn everything you just learned in your tax classes.
If you need help working the REG Exam into your busy schedule, our SmartPath Predictive Technology™ is the most effective way to maximize your study time. It's a data-driven platform that tells you exactly what to study, and how much—giving you targeted goals to reach in order to gauge your preparedness for Exam Day. It takes the guesswork out of CPA Exam preparation and will help you pass the exam faster than ever before.
However, if you don't feel prepared to take the REG Exam in 2018, fear not. As a Roger CPA Review student, your study materials will automatically be updated to reflect all of the new tax changes when you're ready to study for REG in 2019.
Therefore, no matter when you take the REG Exam, be it now or later, we've got you covered. And we will guide you on the smart path to CPA Exam success.
I hope you received a good overview of how this Tax Reform will affect you. In summary, be ready to embrace the effects as well as the opportunities that these changes provide for all of us in the accounting profession.