Here’s why your refund may not be as high as you expect under the new tax law
And why you should file now... not later
MADISON, Wis. — If you’re banking on a bigger tax refund this year because of the new tax law, think again. While the new system is supposed to make filing your taxes easier, it might also mean you get a lower refund.
Here are some of the most important things to know when filing in 2019:
1. There’s a new form. The first thing you’ll notice when you sit down to do your taxes this year is the form. To simplify the tax filing process, there is now only one version of the 1040, and it’s about the size of a postcard.
The only information on the first page is your name, address, the number of dependents you have, and your signature. On page two, you’ll enter wages, interest, dividends, one line for tax, one line for credits, and the amount you’re getting back.
2. You might not get as much money back, but that doesn’t mean you’ll pay more either. Accountants call this year’s process easier for the average person. With the new tax law, everyone’s filing on the same form. Most people’s tax rate is less, too. But that’s not all: Your refund check may be less, a lot less, than last year.
Instead of withholding as much throughout the year, the government gave it to the people to spend, which is something not everyone realizes.
“They anticipated for the lower rates,” said Tylor Katze of Beckett Tax. “And it’s causing people to owe or have a lower refund overall, which they’re not too happy about.”
3. Most Americans will get a tax cut. The bottom line is that most people are paying less in taxes in every paycheck because of the new tax law. Since your paid less in taxes every check, your refund may not be as big as it was in the past and some will even pay more this time.
“Overall, I have found about 75% of people will have more money in their pockets,” said Katze. “That doesn’t necessarily mean they’ll have more money in their tax returns because of the withholding rates changing. Most people should have more money to spend.”
The average American household makes $62,000 each year. In 2017, they would have been taxed 25-percent of that. This year, for 2018, they’ll be taxed at a 22-percent rate.
4. Exemptions have changed. This year, there are also no more personal exemptions, meaning you can no longer claim and deduct money for every person in your household, which was more than $4,000 per person until 2017. Since you can’t do that anymore, two things were done to make up for it:
The standard deduction went up. For single filers, it used to be around $6,000. Now, it’s $12,000. For married couples filing jointly, it used to be $12,700. Now, it’s $24,000. For heads of households it used to be $9,350, and now it’s $18,000.
5. Mark your calendars! Taxes are due on April 15 this year, which is a couple of days sooner than last year’s filing deadline. If you don’t think you’ll get to your taxes in time, you should file an extension for both federal and state taxes. It’s important to remember you’re only given an extension to file, not to pay. That’s still due by the deadline; otherwise, you can expect to pay interest and penalties on top of what you owe.
6. Start thinking about your 2019 taxes… now. It’s never too early to look ahead to next year’s taxes: If you want the bigger refund like you’re used to, talk to your tax adviser now and change your withholdings to make sure you don’t owe and get more money back in 2020.
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