Episode 57: Understanding the Tax Reform Law
So many Americans are asking the important question: What does the tax reform law mean for me? Tax reform is definitely a hot topic for our profession, for every industry and for us as individuals. Financial well-being is a key pillar of our DHG IMPACT committees and joining us today is Eric Hessler who is a senior manager in our tax practice. Eric will help us uncover and clarify some of the information we all need to know about the tax reform law.
Episode 57 Transcript:
AGH: Hello everyone and welcome back to another episode of our DHG podcast series. I’m Alice Grey Harrison, your host, and I love this venue because we get to hear about the things that matter the most to us here at DHG; flexibility, careers, and of course, our people.
Tax reform is definitely a hot topic for our industry and really for every industry in the world right now and for us as individuals. There’s a lot of work being done here at DHG to understand the implications and the changes of the new tax code. And while a large number of our professionals are part of the tax practice and are living and breathing this every minute of the day right now, we also have many professionals who are audit, advisory, and support team members like me, and we could use a little help understanding what tax reform means for us as individuals. So as part of DHG IMPACT, financial well-being is a key pillar.
Joining me today is one of our very knowledgeable tax professionals taking a break before the tax deadline, Eric Hessler. Eric is a senior manager in our Tyson’s office. Welcome, Eric.
EH: Hi Alice Grey. Thank you for having me.
AGH: Absolutely. Okay. For people like me, let’s start with something very basic. When did the new tax law take effect?
EH: Well, that’s a great question to start off with. I can tell you that it was signed by the president on December 22, 2017. As with anything in tax, the answer is sometimes it depends. Sure, some changes you’ll see for 2017, but most individuals will begin to see most substantial changes effective for the 2018 calendar year.
AGH: Okay. There are some things that are in effect at this moment. I’ve heard through the grape vine and through our great tax professionals that we need to check our federal tax withholding. What do we need to know about this topic?
EH: Well, that’s really a great point. I think everyone needs to take a time now especially to check up on your tax withholding. As you mentioned, tax reform is a hot topic. A lot of things have changed and you might find that your personal tax situation has changed maybe dramatically, maybe just a little bit from prior years, but there’s a lot going on here; things that could change in terms of mortgage interest, deductibility, other tax issues that you might want to deal with. If you’re like me, you don’t like to give the IRS money, interest free, which is essentially what you’re doing if you just stockpile a big refund.
In addition to that, the flipside is obviously you don’t want to owe the IRS a lot of money either at the end of the year when tax returns become due. There could be potential interest or penalties on that if you’re severely underpaid, but bottom line is most people don’t like that showing up either. So payroll companies in general should be trying to address it, but as you can imagine, there are some pretty substantial changes, and it’s taking everyone a while to adjust to this. So I would not wait for them to figure it out. I would take matters into your own hands and get out there and see what you think your tax situation is going to be like.
If you need help adjusting all of that, the IRS has actually put out a nice little withholding calculator on their website. I would recommend that everyone take a look at that as well.
AGH: So people can go just type in IRS in Google, go to their website and calculate it for themselves. They don’t have to go to a tax professional to figure it out?
EH: Well, if I can add the caveat by saying it depends on the complexity of your tax situation. If you have just the W-2, that might be easy enough for you. If you have a W-2 and a bunch of other investments and things going on, it might be worth talking to someone, your tax advisor, rather than just the computer screen.
AGH: Oh, that totally makes sense. I’ve heard that medical deductions have changed for 2018. What do I need to know here?
EH: Well, if you’re someone that has claimed medical deductions in the past, you’re familiar that there was a limitation on the amount that will be deductible, and typically it was only deductible as an itemized deduction and to the extent that those expenses exceeded 10% of your adjusted gross income, which is essentially your gross taxable income, less a few adjustments.
So that 10% threshold limit has been reduced to 7.5% this year, 2017 – next year, I should say, in 2018. Again, that’s only for tax payers claiming itemized deductions, which you may want to reconsider claiming itemized versus standard deductions in light of some of the tax law changes that are out there.
AGH: Okay. That makes sense to me. So a tax professional obviously can help you figure out where you need to go. Because DHG IMPACT focuses on financial health, what can we do as individuals from a tax standpoint, what can we do to improve our overall financial health? What advice do you have for us?
EH: I think one of the first things goes back to the point we made a few minutes ago by checking your withholding. Obviously, you want to optimize that however you can because whatever free cash flows you can generate, you can use for, obviously to better your financial health for investment and whatever other needs you have there. You’ll hear this all the time, it’s not using the tax reform but there are a lot of different tax efficient savings vehicles. So obviously make sure you’re considering taking advantage of any retirement plans that your employer offers, especially through the extent that you can receive a match if you can get a tax-free contribution. Consider too, like your medical expenses, other big expenditures that might be coming up in the next year. An easy one for my wife and me, we just had our third son and so we knew for nine months that was going to happen and we were able to adjust our medical savings tax free to respond to that and give us a little bit more tax-free cash.
Those are just some of the things that you can do, but obviously anything you can do to leverage a tax favorable situation is something you should do.
AGH: Okay. I’m going to jump around for a minute, because I realized I forgot to ask you another question that I had related to the deduction. We talked earlier about the medical deduction. Are there other deductions that can be taken as a standard deduction without being itemized?
EH: The taxpayers out there, those among us paying tax, you and me included, right? As individuals, we’re going to have to basically select either a standard deduction or an itemized deduction. A standard deduction aims in general to simplify the process and to make sure that people don’t have to go through their shoe box full of receipts to figure out what they actually spend money on during the year and what may or may not be deductible as a lump sum deduction. It’s meant to include expenses paid for deductible items such as state taxes, property taxes, and mortgage interest, among others.
But if you have mortgage interest that you’re paying, if you have state and local taxes, property taxes that you’re paying and you’re paying a lot, it may be worthwhile to itemize. You might find that those numbers are higher than the standard deduction. If you’re not claiming an itemized deduction, you’re not deducting mortgage interest and other deductible things.
But some of the things that you can claim regardless of whether you’re using standard or itemized are your student loan interest. If you have any kind of business on the side or if you have rental properties, things like that, obviously expenses related to those are going to be deductible regardless of whether you have claimed itemized or standard deductions on your personal tax return.
AGH: Very interesting. There is a reason why I am not a tax professional. You have to know so much technical information. Oh my goodness! I know you’re just scratching the surface with this, but I see our tax professionals right now working so hard toward the tax deadline. I know our people, every Friday, we’re having live stream webinars to learn more and more about tax reform.
I have one more question, then I’m going to let you get back to work. What career advice do you have for someone who’s just starting out in this industry?
EH: That’s a great question too. This might sound kind of generic, but I really mean it. You got to keep an open mind, okay? You know that when you get into this industry, it’s demanding and there’s going to be things that you like about it and there’s going to be things that you don’t like, but keep an open mind, stay focused and just be ready to accept the things that are given to you. I’m not saying lay down and take whatever is given. However, you may have to look at a different opportunity and try to identify what you really want to do. The point is don’t have any preconceived notions. Work hard and don’t be afraid to ask questions because that’s how you learn. That’s how I’ve learned. Ask questions. Don’t be afraid to do that. Whatever it takes for you to learn what you need to learn, that’s what you got to do.
AGH: Super! That’s great advice. That’s good advice for someone at any level in their career.
EH: I agree.
AGH: Well, thank you so much for taking time out during this busy time of year.
EH: Absolutely, happy to do it.
AGH: And thank you all for listening to Life at DHG, our premier podcast series. If you like what you just heard, we hope you’ll tell your friends and colleagues. Be sure to check out our DHG blog for more great stories about our live beyond numbers. Join us next time for another edition of Life at DHG.