Now that April 15th has passed, you have seen first-hand how the new tax bill affected your taxes. With so many moving parts, tax reform affected people in many different ways. For the most part, taxpayers paid less tax, but many still saw their refunds decrease.
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On today’s topic we are going to be talking about the tax refund, or tax due this year.
That’s right, now that April 15th has passed, you might have seen first hand with how the new tax bill has affected tour tax return. With so many moving parts, the tax reform affected people in so many different ways. For the most part, tax payers actually did pay less tax even though a lot of them saw their refunds decrease.
So why is that? Because I’ve noticed that as well.
A lot of different reasons. The biggest thing is that although your taxes went down, with the new withholding tables that the employers had to put into place last February, it actually decreased the withholding a lot more than the savings in taxes. This made the refunds lower.
So, did it really get better or worse this season?
From a refund point of view if you look at the statistics, refunds were down somewhere around 8% as of the end of January. At the end of February they were as down as much as 16% or 17%. So it was a pretty big decrease in refunds at that time. But at the end of March, refunds were slightly up. I think this makes sense because if you think about it, the returns that are done in early January and early February are people with W-2 wages. They’re fairly straight forward returns. That’s what we just talked about. Their tax may have gone down, but their withholdings have gone down a lot more so they saw less of a refund. As you get deeper and deeper in the busy season, you start to do small business returns and some of the more complex returns. Those are the returns that really benefited a lot from the new tax bill. They actually received bigger refunds than normal.
So what should people do if their taxes weren’t what they expected?
Well now that we have this year under our belt, everyone kind of knows that the tax law is going to affect them. So right now is the time to adjust your withholding. Look at the calculator on the IRS website. Look at the new W-4 forms. Do what you have to do to either increase your withholding or decrease your withholding depending on how your year came through. By doing that it will get you much closer to where you were in prior years. If your withholdings were too low, you may have to pay estimated taxes.
But now is also a great time for business owners to really keep track of their expenses. One of the things that we saw during this busy season was that even though business owners were really good at running their business, they’re not as good at keeping track of all of their expenses. Of course, if you don’t keep track of your expenses, you really don’t know what kind of deductions you can take. So now is the time to really set a plan in place if you’re a business owner to keep track of those.
So really this is why someone needs to work with you guys. Any other thoughts on this previous tax season?
Sure. Like I said, I think it was a little more difficult than most. I think most accountants will tell you that. We really did more extensions than we’ve done in the past. Part of the reason for the extensions people’s returns came in late. Whether it was because they wanted to do it on their own because they heard it was much more simplistic than it was in the past. This ended up not being the case.
The new 10-40 form was confusing. It used to be a two page form and they made it a lot simpler by putting it on this double-sided postcard looking thing. But attached to that double-sided card was like seven schedules. So it actually made it more complicated, rather than make it easier.
More people took the standard deduction, but even those who took the standard deduction still needed to keep track of their real estate taxes and their mortgage interest and charitables because they can use some of that on their state returns. Even though they weren’t getting a benefit for it on their federal returns.
I’ll have more thoughts in the weeks to come, but those are some of my initial thoughts over this last busy season.