Filling out taxes this year wasn’t as simple as filling out a postcard, undercutting one Republican promise — but the typical taxpayer did have a much easier time of it, saving hours of time thanks to the 2017 overhaul, according to a study released Monday.
A higher standard deduction meant many taxpayers no longer needed to itemize their deductions, saving taxpayers 241 million hours of excruciating work on their 2018 taxes. That works out to $2.9 billion in preparation costs Americans saved, according to the National Taxpayers Union Foundation.
For most Americans, Monday’s tax deadline marked the end of the first full filing season under the tax cuts Republicans powered through Congress in December 2017, promising lower rates and less stress for most taxpayers.
Some filings did get more complicated, particularly for pass-through corporations, but the net “tax compliance burden” overall on the individual side was $92.5 billion, which is $1.76 billion less than the previous year.
The National Taxpayers Union Foundation said any drop at all was rare, particularly in the midst of an economic expansion when people’s finances usually grow more complicated.
“I think that for a majority of Americans, they will be able to notice a smoother filing process,” said Pete Sepp, president of the taxpayers union, whose associated research arm calculated that the average compliance cost dropped about $30 per filer.
Most of the focus nationally is on what the $1.5 trillion tax cut law means for Americans. Numbers show most are getting tax cuts, though polls say they don’t know it.
But Republicans say another big goal of their law was to simplify the process of paying taxes. On that score, they did make headway, albeit unevenly.
Corporations, as well as small business owners who pay their business taxes as pass-through entities, are facing more complexities and higher out-of-pocket expenses, the National Taxpayers Union Foundation study concluded.
Average filers are doing the best. Millions of them found that taking the standard deduction — now about double what it used to be — was a better deal than the time-consuming hassle of itemizing.
When the numbers are tacked against one another, the National Taxpayers Union Foundation said, there will be a net decrease of 41 million hours of tax preparation. That is small compared with the more than 8 billion hours still spent, but given the country is in the midst of an economic expansion, any drop is a rarity, wrote Demian Brady, director of research for the National Taxpayers Union Foundation.
Republicans’ most prominent simplification pledge was the promise that many Americans would be able to complete their tax returns on a single postcard-size form under the new law. Former House Speaker Paul D. Ryan even carried a mock-up postcard in his pocket to illustrate the claim.
The Treasury Department last year unveiled a truncated 1040 form that most individuals were supposed to be able to use. The National Taxpayers Union Foundation study noted that the total number of lines on the 1040 form dropped from 79 in 2017 to 23 in 2018.
But the IRS also included an additional six schedules for people with more complex returns and eliminated forms including the 1040A and 1040EZ that were tailored for people with simpler returns.
With the additional schedules, people who report income from capital gains or investments, or who want to deduct student loan interest, would have to complete the new 1040 and an additional form.
“The postcard was bogus — there never was a postcard,” said Howard Gleckman, a senior fellow at the Tax Policy Center. “It’s actually literally not a postcard. I took the trouble of checking to see what the Postal Service uses for its guidelines for a postcard, and this isn’t it.”
Keith Hall, president of the National Association for the Self-Employed and a certified tax accountant, said Republicans did make some headway.
“I think it is simpler. I think they got there — maybe short of the postcard-type concept, but I think it is easier than it was a year ago,” Mr. Hall said.
The law’s authors say tax filing will only get better as Americans adjust.
“I think a lot of people went into tax season acting as if it was last year — keeping the same receipts, going through the same process,” Rep. Kevin Brady, Texas Republican, said Monday on CNBC. “I know for [my wife] Cathy and I, we now realize there’s a lot of things we don’t have to do going into tax season next year that’ll be helpful.”
Mr. Brady, who was chairman of the House Ways and Means Committee at the time the law was written, estimated that 90 percent of the public will now be able to file their taxes without having to calculate their itemized deductions because of the increase in the standard deduction.
Mr. Gleckman said many of the estimated 27 million taxpayers who will no longer itemize probably still went through their typical routines, negating the time savings benefit.
“Since the record-keeping is the most time-consuming part of this, it probably didn’t save them any time this year,” he said. “But having learned what the rules are, in the future it probably will make their life simpler.”
Elsewhere in the code, a deduction for pass-through businesses that file their taxes as individuals is creating complexities.
The National Taxpayers Union Foundation study said those businesses will likely end up paying less in taxes but will take them more time figuring out their forms. Overall, their time will increase by 52 million hours.
“The business side of the tax relief and reform will remain a challenge to communicate to the broader public, but it’s vital,” Mr. Sepp said.
Mr. Hall said he is hearing anecdotally of more people asking for extensions this year.
He said software is readily available but that the novelty of the code can be daunting.
“It is scary because it’s new,” he said. “I think there probably is a better, easier way than it was last year, but I think because it’s new I think most people don’t realize that it’s easier.”
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