Getting Ready to Pay the Taxman


Getting Ready to Pay the Taxman

CPA Javier Alacron discusses tax reform with small business owners.
CPA Javier Alacron discusses tax reform with small business owners.

Some elements of the new tax reform package that was signed into law late last year and took effect in 2018 are straightforward and simple to understand. Others are detailed and complex. And some areas are cloudy since the regulations haven’t been written yet.

The simplest part of the package to understand is the lowering of tax rates in the seven tax brackets for individuals. “Whatever bracket you are in, more of your income will be taxed less,” accountant Javier Alarcon said during one of several presentations on the tax code changes sponsored by the Small Business Administration around the Rio Grande Valley on the tax code changes. “The taxpayers who pay the most taxes will get the most reduction, but everybody should see some benefit.”

The largest tax cuts go to corporations, where a flat 21 percent rate will be levied on corporations instead of the previous range of 15 percent to 35 percent, depending on income. “Corporations by far were the biggest winners and got the biggest slice of the pie,” said Alarcon, a certified public accountant with Burton, McCumber & Longoria.

And while many provisions of the new tax code are set to expire in 2025, there is no sunset date on the corporate rates. “It’s as permanent as it can be,” he said. “It will take an act of Congress to change it later.”

One of the highest profile changes in the new law is the almost doubling of standard deductions, which will make filing tax returns easier for many individuals and small businesses, Alarcon said. But elimination of some other deductions may take away some of that benefit for taxpayers.

“You will see Congress trying to balance it out,” he said. “Lowering things here and increasing it there. They gave you that, now it’s time to take things away.” For example, the child tax credit was doubled to $2,000 while personal exemption deductions have been suspended. Miscellaneous itemized business deductions such as unreimbursed employee business expenses and investment expenses will no longer be allowed. “Miscellaneous is the only category of itemized Schedule A deductions that are going away,” Alarcon said.

Regulations are still being written for some new tax code provisions, such as how to handle deductions for pass-through entities where individuals receive income from a partnership, s-corporation or sole proprietorship, where the code splits out service and non-service businesses for the first time.

“This is brand new and never been done before and is creating the most buzz,” Alarcon said. “We haven’t had a lot of guidance on this – what if you have both.”

The tax bill, at some 600 pages, is long and complicated. Alarcon said most businesspeople cannot be expected to wade through the legal jargon and understand the changes that will affect their tax liability for 2018. He said businesses should review their accounting methods to make sure they are tracking expenses and income in as much detail as possible.

Professional accountants and financial advisors can help people limit the amount of taxes they end up having to pay. “It’s my opinion that the less money the government gets the better,”
he said. “It is better for the overall economy.”

Alarcon said now is the time to start thinking about how to prepare to pay their taxes. Too many individuals and small businesses don’t plan well enough and end up in a tough spot with the IRS.

“No matter your business you have a partner and, like it or not, it’s the IRS,” Alarcon said. “He’s going to get his cut so it’s best to set it aside now. Once you get behind it becomes a vicious cycle and it gets very difficult to get caught up.”

George Cox is a veteran journalist with more than 30 years experience as a newspaper writer and editor. A Corpus Christi native, he started his career as a reporter for The Brownsville Herald after graduating from Sam Houston State University with a degree in journalism. He later worked on newspapers in Laredo and Corpus Christi as well as northern California. George returned to the Valley in 1996 as editor of The Brownsville Herald and in 2001 moved to Harlingen as editor of the Valley Morning Star. He also held the position of editor and general manager for the Coastal Current, a weekly entertainment magazine with Valleywide distribution. George retired from full-time journalism in 2015 to work as a freelance writer and legal document editor. He continues to live in Harlingen where he and his wife Katherine co-founded Rio Grande Valley Therapy Pets, a nonprofit organization dedicated to raising public awareness of the benefits of therapy pets and assisting people and their pets to become registered therapy pet teams.