Last week, Roger Philipp, CPA, CGMA, and CEO of Roger CPA Review sat down to talk about how the new Tax Cuts and Jobs Act (TCJA) would affect accounting students academically and professionally. This week, he’s addressing how this new Tax Reform is affecting CPA candidates. 
Watch the video below or read the article to learn more about how Tax Reform is changing the Regulation section of the CPA Exam and what you, the CPA candidate, should be doing to prepare for success.


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 Sch-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. 

How does this affect you, the CPA Exam candidate? 

  • It will change the REG section of the CPA Exam. The content areas that are most affected on REG will be taxation, which makes up about 80% of the exam. This includes federal taxation of property transactions, of individuals, and also federal taxation of entities, like a C corp, S corp, and partnerships. Estates and trusts will also be changed, or—what I like to call—gifts and stiffs. For example, instead of $14,000, your parents can now legally give you $15,000 a year. Estates have also been doubled to about 11.2 million dollars. These are a few of the changes that candidates can expect to see on the REG section in 2019. 
  • If you want to avoid those changes, sit for the REG section of the CPA Exam now. The AICPA stated that the new tax changes won’t be tested on the REG section until January 1, 2019. Therefore, we recommend that you sit for REG now, in 2018, before January 2019 hits. Why? Because everything you studied in college, whether it's individual taxes or entities, is going to be on the Regulation section of the CPA Exam all throughout the remainder of this year. You won’t need to learn new material, and the material you’ve already studied thus far won’t be obsolete. 

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  • Not prepared to sit for REG this year? Don't worry about it. Because as a Roger CPA Review student, your study materials will automatically be updated to prepare you for the REG changes in January 2019. So, no matter when you decide to take the REG Exam, we have you covered, and we'll guide you on the SmartPath to CPA Exam success.