Do you remember December 2017? You know, back when “The Last Jedi” premiered (RIP, Carrie Fisher) and BTS was blowing up Twitter (“Mic Drop”)?
Yeah, me neither.
But one important event happened in December 2017: the signing of Tax Cuts and Jobs Act (TCJA) into law. This new tax law was last year’s early Christmas present from the government to accountants.
And it’s about to become this year’s late Christmas present from the AICPA to CPA exam candidates. That’s because, on Jan. 1, 2019, REG’s testable content will incorporate the TCJA’s tax law changes. So, the AICPA is regifting.
To determine exactly how thankful we should be for this gift – because, as we all know, accuracy is everything – we must assess the extent of these changes.
I’ll get to the details shortly, but to summarize, the TCJA enacted the most expansive tax law overhaul in 30-plus years. The last time this happened (October 1986), “Top Gun” had taken over the box office (no points for second place) and Oprah had just debuted her talk show.
The fact that this bill had such a big impact on the tax law means that it’s also going to have a big impact on REG. You see, REG specializes in tax. Specifically, it dedicates anywhere from 55 to 85% of its content to federal taxation topics. But you knew that.
The new tax law will alter REG’s content so much that the AICPA gave themselves a full year to update the exam. Normally, they start testing on tax law changes and other new legislative-based material about six months after the law takes effect.
So, back to the big question: How much of the tax law did the TCJA affect?
Pretty much all of it. Here’s just a SAMPLE of what was revised:
- Personal exemptions
- Standard deduction
- Individual income tax brackets
- Corporate tax rate
- First-year bonus depreciation
- Alternative minimum tax (AMT)
- Major tax credits
- Depreciation and amortization
- Estate tax
- Gift tax
- Non-recognition transactions
- Entertainment expenses
- Net operating loss
- Maximum deduction of Sec. 179 property
- Taxable year of inclusion
- Cash method of accounting
- Inventory accounting
And much, much more.
A few more specific examples if bullet points aren’t enough for you:
Personal exemption was eliminated: Previously, you could subtract $4,150 from your income for each person claimed. This is no longer an option; therefore, having a bunch of kids is no longer a tax-savvy move. Whew!
Standard deductions doubled: The single-filer deduction increased from $6,350 to $12,000, while the married and joint filer deduction increased from $12,700 to $24,000. But sadly, these deductions will revert back in 2026, so don’t get too comfortable with them.
Most itemized deductions were eliminated: While the TCJA retains deductions for charitable contributions, retirement savings, and student loan interest, it tosses out deductions like moving expenses, except for members of the military. Basically, getting that home-office deduction will be harder now.
Individual income tax brackets shifted, and some received tax rate reductions: People in five of the seven tax brackets got a tax break.
A $10,000 deduction for state and local taxes was added: Taxpayers must choose between property taxes and income or sales taxes. Let’s just add to the housing woes of people in New York and California, why don’t we?
Corporate tax rates were cut: The TCJA reduced corporate tax rates from 35% to 21%. And though the individual tax changes expire at the end of 2025, these corporate tax cuts are permanent. Best Christmas present ever, amirite?
OK, enough examples. Now, let’s answer the next big question: What do all of these REG changes mean for CPA exam candidates?
Clearly, they mean that candidates taking REG must know the new tax law inside and out.
That’s easier said than done because we haven’t had a lot of time to get used to the TCJA. However, the major CPA review course providers have updated their courses for the revised REG content using the CPA Exam Blueprints. And, as I always say, there’s no better way to learn about revolutionary tax bills than in preparation for super-hard accounting certification exams.
We’ll know how well those preparations went/how tricky this tax law really is when we see the 2019 REG pass rates. The 2018 REG pass rates have been uncharacteristically high.
REG CPA Exam Pass Rates by Quarter (2017-19)
Q1 2017: 46.10%
Q1 2018: 49.99%
Q1 2019: ?
Q2 2017: 48.32%
Q2 2018: 55.75%
Q2 2019: ?
Q3 2017: 49.31%
Q3 2018: 56.55%
Q3 2019: ?
Q4 2017: 45.89%
Q4 2018: ?
Q4 2019: ?
See? Those Q2 and Q3 2018 percentages are the first- and second-highest REG pass rates EVER (in the last 12 years). These skyrocketing pass rates possibly appeared because the latest CPA exam version (released on April 1, 2018) was designed to provide an easier testing experience.
While I’m all about being optimistic, I’m skeptical the pass rates will stay that high in 2019. But fingers crossed REG candidates prove me wrong.
So, in conclusion, best of luck to everyone taking REG in the next CPA exam testing window! I hope the REG pass rates don’t tank.
Stephanie Ng is the author of How to Pass The CPA Exam (published by Wiley) and publisher of several accounting certification exam prep sites. Stephanie is a licensed CPA (not in public practice) and avidly encourages others to earn professional accounting certifications and designations. To help candidates do so, Stephanie recalls her own experience as a CPA candidate to rank CPA review courses honestly.
Stephanie spent several years working at Morgan Stanley as an investment banker and later went to work in internal corporate finance in the private sector. She now volunteers full-time as a CFO with the charitable organization New Sight.
She is committed to assisting tax preparers, accountants, and future accountants in achieving their career goals by providing useful information on her websites.