For several years now, my spouse and I have depended on our tax refund to make it through the year. A friend told me to not expect as much as last year and now I’m concerned about how that will affect our family. Can you offer any help for this year and tips to prepare for next year?
Great question, since roughly 60% of Americans expect to receive a refund based on their income tax filings.
The Tax Cuts and Jobs Act passed in December 2017 made changes that impact all of us this year. Many Americans do not know how those changes will affect them and may be pleasantly surprised or extremely disappointed.
The IRS released filing statistics for the week ending February 8th. The first two weeks of filing reveal that the number of returns is down and that refunds have dropped 8.7% with an average decrease of $186. These numbers are no reason to panic. We have another 6 weeks of statistics to analyze and some analysts predict higher returns.
Lower refunds are not indicative of more taxes paid, but the fact that tax savings showed up in paychecks throughout the year. This is the situation for those who did not adjust their withholdings after the new tax law changes.
Business Insider reported that UBS analyzed how the new tax law would affect tax refunds. The findings revealed the following:
- Singles may see a smaller refund
- A $10,000 cap for deducting state and local taxes (SALT) will lower refunds for higher-income residents of states with higher taxes (like California and New York).
- Married couples with two children may see an increase in refunds (especially those making less than $40,000 or between $125,000 and $400,000) due to the increase in size of the child tax credit and in the income threshold for claiming that credit.
1. Plan and File Early
- Minimize stress by organizing well to file sooner than later.
- Prepare adequately to avoid penalties and costly mistakes.
- Limit potential for tax identity theft.
- Online filing with direct deposit grants faster refund.
- The IRS may waive penalties if at least 85% of the tax liability has been paid.
2. Helpful Resources
3. Beware Of…
- Depending on refunds as part of your budget
- Scams: review the IRS ‘Dirty Dozen’ list
- The fees of tax refund advances or loans: prepare early so you don’t need an advance
- Preparers who promise big refunds: cheating may grant a larger refund, but back taxes and jail time aren’t worth it
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SOURCE: Christian Post, Chuck Bentley