Tax Cuts & Jobs Act Overview
- 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
- 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.
- 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.
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If you’re planning on becoming a CPA and already completed your tax classes…