Whew! We made it through 2018, the first full year that the latest major tax law changes were in effect.
Now we're about to see, depending on when Congress and the White House can agree to get the government (including the Internal Revenue Service) fully operational, if we can deal with the first tax filing season under those laws.
But before we get lost in the intricacies of the Tax Cuts and Jobs Act (TCJA), I'm taking this one early day in 2019 to look at the six tax stories that turned out to be big deals last year.
These are not the most popular posts in 2018 from the ol' blog, although you'll find some of those links below. Instead, this list covers tax matters that I believe had the most tax impact last year.
And because we all want some warning of what's coming, I'll also pull my crystal ball out of storage for some predictions of what we're likely to see in 2019 on these tax topics that will, for the most part, have continuing implications in 2019. My predictions as to what might happen in these tax areas are posted right after last year's reviews.
That consolidation of these half dozen cross-year tax topics also earns this post my weekly By the Numbers featured post designation, the first of the New Year.
1. Tax reform takes effect.
No surprise that this tops the list. The TCJA was the first bill to make major changes to the Internal Revenue Code, not just tweak tax rates, since the historic Tax Reform Act of 1986. The problem with the TCJA, though, is how it came to be. Republicans rammed it through late in 2017, without the usual array of hearings on the many changes or any substantive input from their Democratic colleagues. In fact, some of the legislative language was scribbled on printed pages, sometimes at the behest of lobbyists, during the bill's final debate.
This has led to some — OK, a lot of — confusion about just what some provisions mean. I'm looking at you section 199A small business deduction.
2019 Prediction: Look for a messy tax filing season, even if House Democrats, with the Republican Senate along for a ride, and Donald J. Trump can reach a deal relatively soon to get the 2019 filing season on track. Tax software, which most folks use, will help. Tax professionals, which more people are using nowadays, will help even more. But there are bound to be problems as individual taxpayers discover how their individual situations are finally, fully affected by the new tax laws (and those that are now gone). Things also could worse for folks who didn't adjust their payroll withholding to reflect the TCJA's changes.
2. Tax Reform 2.0 languishes.
Not satisfied with getting the TCJA in the books, Republicans looked to make even more tax law changes as 2018 wound down. The Party also was acutely aware that its time in the House — and in in charge of the tax-writing Ways and Means Committee — was rapidly running out. Ways and Means Chair Rep. Kevin Brady was able to get three measures, dubbed Tax Reform 2.0, through his committee and ultimately passed by the GOP House. The bills would have expanded retirement and other savings incentives and offered tax breaks for startup businesses, but were never considered by the Senate.
2019 Prediction: Tax Reform 2.0 is dead in the water. So is most other tax reform. The reason is divided government. If the GOP couldn't get one more round of taxes through when it controlled both the House and Senate, there's no way any tax bills will be able to satisfy the warring political parties now that the House is back in Democratic control. That said, it is possible that some technical corrections, those fixes to unintended tax law glitches, could be made to the TCJA. This is something everyone has known needs to be done for more than a year; it topped my 2018 tax prediction list. But knowing and doing are two different things. Brady released a technical corrections discussion draft on Jan. 2, the day before the Democrats took control. He's hopeful Neal and the Democrats will consider his proposal. Politically, there's strong opposition among Democrats to any TCJA technical corrections. That's understandable given that the GOP refused to help Democrats fix problems in the Affordable Care Act (aka Obamacare) after it passed on a party-line vote. But it's possible that some of the tax errors could get past the political issues.
3. Extenders weren't extended.
One tax package the GOP couldn't get through was the extenders. This is a collection of tax laws that are temporary and must be periodically renewed or extended. In December 2015, the Protecting Americans from Tax Hikes (PATH) Act made many, but not all, extenders permanent. Some of those that weren't taken care of under path were renewed in February 2018 retroactively for the 2017 tax year. But other tax breaks and those who relied on them weren't so fortunate.
We went through all of 2018 without those tax breaks, including the tuition and fees above-the-line tax deduction, the ability to count private mortgage insurance (PMI) premiums as deductible home loan interest, the tax credit for some energy efficient home improvements. Unless Congress extends these, again retroactively for the 2018 tax year and the 2019 and/or future tax years, they won't be available to taxpayers who want(ed) to claim this this filing season
2019 Prediction: The extenders will be passed for 2018. Congress tends to do this when they have to back into the laws' renewal to accommodate folks who operated on the presumption that, once again, the tax breaks would be renewed. Yeah, that's a dangerous tax strategy, but Congressional history has lulled many taxpayers into the presumption that tax breaks are hard to kill. Fingers are crossed for affected filers that the retroactive extensions are granted before the April filing deadline (which has to be met even if we're still in government shutdown then). But extenders' future beyond retro reactivations for 2018 is cloudy. There is a growing sentiment on Capitol Hill and among trade and activist groups that temporary tax laws are bad tax, fiscal, and economic policy. Some lawmakers on both sides of the aisle are arguing for an end to the extenders, at least those specifically those are targeted to a very small segment of the taxpaying world.
4. New IRS commissioner inherits same old IRS problems.
Almost 11 months after beleaguered John Koskinen served out his full term as IRS Commissioner, the agency finally got a new leader. Charles Rettig, a California tax litigator, took over as the IRS' 49th commissioner on Oct. 1, 2018. Rettig inherited not only the office in northwest D.C., but also the same problems, primarily agency personnel attrition and a perpetually reduced budget.
2019 Prediction: Most in the tax world, both the private sector and on Capitol Hill, are pleased with Rettig's credentials. Lawmakers also realize that they need the IRS to not only implement the new tax laws, but also to collect as much money as possible. While purse strings are tight due to the still-growing (due in large part to the TCJA changes) and the IRS has been has been bringing in more tax money even with lower budgets, I expect Congress to try to give the IRS a bit more money in the coming fiscal year (once they get it its due cash for this one!).
However, the potential politicization of the IRS is still a worry. Throughout Koskinen's term, Republicans accused him of, among other things, hiding what they saw as IRS tendencies to unfairly treat conservative nonprofits when it came to enforcing tax rules. Now it's Democrats who are concerned. A Trump administration policy revision now lets nonprofits that are involved in politics be more secretive about their donors. They argue that this limited disclosure is a thinly veiled attempt to weaponize the tax code to punish political adversaries and benefit so-called dark money groups on the far-right that seek to buy elections. Dems were not satisfied with answers from Rettig on this issue during his confirmation hearing. Now that they have House control, look for them to call the new commish to the Hill for further discussions. But the conflict between Rettig and Capitol Hill Democrats will not get to the operatic overdrive that characterized Koskinen's interactions with GOP tax-writers, who tried repeatedly to impeach him.
5. Online sales tax collection is OK'ed.
This was one of the least dramatic Supreme Court decisions in recent memory. As expected, the High Court's 5-to-4 ruling last June in South Dakota v. Wayfair struck down the prior Quill nexus requirement and opened the door for states to devise systems to collect sales tax from all remote sellers.
A handful of states had sales tax collection efforts underway or in place. Others are working on it, including the nation's largest states. But essentially, the ruling has added a lot of uncertainty to the online marketplace. Retailers and consumer advocates want Congress to step in and create a national standard to clear up the confusion created by the multiple state methods of collecting remote sales taxes.
2019 Prediction: Congress will continue to talk about national sales tax legislation, as lawmakers have done for years, but they aren't likely to hammer out a bill that can pass a Democratic House and Republican Senate. Soon after the Wayfair decision, the House Judiciary Committee met to discuss the federal role in states' remote sales tax collection. Then-Chairman Rep. Bob Goodlatte (R-Virginia) again offered his seven internet sales tax principles, first set out in 2013, that he believes Congress should address. After that hearing, nothing. Same Congressional nothing on the three bills newer online sales tax bills that were introduced in the last Congress. With the arrival of the 116th Congress, it's back to square one legislatively and politically when it comes to federal involvement in state online sales taxes. With all the other matters that House Democrats want to address, this topic isn't likely to get much traction.
6. Sports betting legalized nationwide.
In another landmark 2018 decision, the Supreme Court of the United States (SCOTUS) essentially legalized nationwide sports betting at the discretion of each states.
2019 Prediction: This one's easy. States still are desperate for money. So the states that are looking into adding sports betting opportunities for residents and visitors will continue these revenue-raising efforts. Most will succeed. And there's no need for Congress to be involved, since the SCOTUS ruling invalidating the Professional and Amateur Sports Protection Act (PAPSA) not only made in-state betting OK, but also cleared the path for fantasy sports wagers and online betting, the two areas where Capitol Hill had been trying to intervene.
This 2018 review and 2019 preview list isn't as long as it's been in some years. That's an indicator of how jammed up Congress was even when the GOP controlled both Congressional chambers and the White House.
Now that Congress is divided, I look for even less to happen on the tax front. And maybe that's the best news for all of us right now!