The tax-filing season is officially here. Now what? We’re all still wondering how the so-called Trump tax reforms are going to shake out. Tax experts say the refunds — if you get one — will be larger than usual and the payout — if you must pay — will be less.
A story written by The Wall Street Journal and published on MSN — upon which this is based — gives definition to taxes and how the reforms work. Tax cuts and tax refunds are two different things. The cut is what people owed for 2018 compared to what they would have owed had the cuts not been made.
And — as you know — refunds come from the excess you paid in withholding and from deductions.
David Williams of TurboTax said the definitions are important to deciding just how well the reforms will work for you. “The real question that we can’t answer today is: What will their refunds look like vis a vis last year?” he said.
He points out two-thirds of us have already received our tax cuts by paying less in individual income taxes than we did in 2017. So a huge percentage of the $180 billion in cuts for 2018 have already happened. His estimate is an average household gain of $420.
Tax breaks like moving expenses, employee costs that are unreimbursed and state and local taxes were eliminated.
However, the Tax Policy Center said the personal exemption rose to over $4,000 and there are larger standard deductions and tax credits for child care. Tax rates for individuals dropped. Rates also fell for closely-held businesses, or those with a limited number of shareholders.
It estimates that 65% of U.S. households will get tax cuts averaging $2,180. On the reverse, 6% of us will see a tax increase of $2,760.
How we view the changes — says Mark Steber of Jackson Hewitt Tax Services — is very important. You won’t notice the changes if you compare the 2018 refund from 2017 taxes to the 2018 return. “We worry very much that there will be a perception that ‘My refund went down, I’m in a worse economic position,’” he said. “When, in fact, the reality could be the opposite.”
Business in the U.S. is hoping the cuts will stimulate spending.
That may happen. But what also may happen — says the IRS — is more people than usual will end up owing taxes. That’s because they didn’t withhold enough. Or they used to itemize deductions but now don’t.
This worries the Senate Finance Committee’s Ranking Member, Sen. Ron Wyden of Oregon. He said, “It seems unavoidable that millions of taxpayers who are expecting critical tax refunds will instead owe taxes.”
The IRS has always implemented penalties on people who underpay on their taxes. Those who have paid at least 85% of their 2018 taxes won’t face penalties. That’s down from 90%.
The Trump administration said it tried to write rules so refund patterns don’t change much. Last year 73% of us got refunds and the average refund was $2,899. However, with the tax tables
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