People are Furious at their Drastically Reduced Tax Returns
By: Malory Wood of The Missing Ink
Are you one of the many who was shocked and angered at the drastic reduction of your tax returns? You are not alone. This year, a new tax law went into effect that left many excited for larger tax refunds; however, this is not the case for many people across the country.
Here’s the breakdown of the new tax law of 2019, why your refund may be lower and who benefits the most:
New Tax Law Data
According to the IRS, this year’s tax federal refund is down a whopping 8.7%. This may not seem like much, but for many Americans, they rely on their tax refund to pay off student loans, their automobile, mortgage, stash away for savings, etc.
Last year, financial tax experts revealed most people received more take-home pay every pay period, adding, “Maybe a thousand dollars more over the course of the year… But it was in such small increments it didn’t feel like it. But when you get $500 less on your return at end of the year, now you feel that.”
When President Donald Trump created the Tax Cuts and Jobs Act of 2017 (TCJA), the new law detailed Americans will be paying less in their federal income taxes. Hooray, right? However, many have yet to realize this cut in income taxes gives birth to a potentially large cut in the tax refunds.
In fact, as of February 8, 2019, the average refund fell from approximately $2,135 to $1,949. Some people actually owe the IRS money now! Additionally, some people are now facing higher tax bills due to local and state deduction calculations changing.
Reasons Your Refund is Lower
Standard Deduction Increase
The Tax Cut and Jobs Act has nearly doubled the standard deduction rate. Some taxpayers will receive an overall tax break due to this change; however, many families will suffer due to personal exemptions being eliminated and no longer available to make up the difference of the standard deduction.
Property Tax Cap
For starters, you could be receiving a lower tax refund due to a new limit on property. There is a new $10,000 cap that includes much more than mere property taxes. It additionally restricts the amount a married couple who are homeowners can deduct regarding the state income taxes.
“Any state and local taxes you paid above this amount cannot be deducted,” stated IRS Publication 5307, followed by, “Your total deduction for state and local income, sales and property taxes is limited to a combined, total deduction of $10,000 ($5,000 if Married Filing Separate).”
Personal Exemptions Cut
No longer are you able to file for personal exemptions. Many families are guaranteed to feel this ferocious impact of missing out on nearly $4,150. The new tax act eliminates mostly all itemized deductions, including moving expenses and alimony.
So Who Benefits?
High Income Earners – Benefit the Most
If you receiving a high annual income, you will benefit the most from the new tax law. People who are in the highest percentile will receive a 2.2% increase in after-tax income. The lower 20% of people will only receive a 0.4% increase.
If you are receiving large sums of money as inheritance, the huge estate tax exemption will be to your ultimate benefit.
If you are a younger adult, you will benefit due to the repeal and elimination of the Obamacare tax. This is assumed based on the notion that younger people are typically healthier than older people.
Whether you are a freelancer, entrepreneur, small business owner or 1099 contractor, you stand to benefit from the new tax law. The new law denotes a massive 20% deduction on any earned income that qualifies.
CAM Financial & Tax Services is here to answer all of your tax-related questions with professional, expert advice from our highly-trained staff. Customer service and maximizing your deductions are our highest priority. We provide full tax preparation services for partnerships, corporate, and individual federal and state incomes. Please call us today toll-free at (973)759-4045 to get started on your tax returns today!
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