Posted by Valderas Financial Solutions LLC

Low Returns and What Is Affecting Your Refund

Low Returns and What Is Affecting Your Refund

The average tax refunds continue to be lower compare to last year and the tax deadline is getting close. According to the IRS, $2,640 is the average tax refund for the week ending February 15. Compared to last year, that is 16 percent lesser. 

If you are a first-time taxpayer, then you submit your returns under the Tax Cuts and Job Acts which was implemented last year. Some early filers found out during the start of filing season last January 28 that they owe the IRS a specific amount and/or they are going to receive a smaller refund. 

Filer’s refunds are smaller in the year 2018 because they got their income mainly from their wages- according to Rep. Kevin Brady (R-Texas) who supported the tax overhaul to the Congress, during an interview with CNBC on Thursday. He added that using Form W-4, filers can revise their tax withholding at work. 

Brady told CNBC that people can go at work, fine-tune how much they want in their weekly or monthly pay check and how much they want in their refund. You will most likely get a refund if you will withhold too much. 

However, you will see more cash in your pay check if you withhold less in the immediate term. But, you may owe if you withhold far too little or your refund will be smaller the following year. 

Nathan Rigney, lead tax research analyst at the Tax Institute at H&R Block said that the people who are most likely to be surprised this year are the ones who lost some deductions they had last year and who didn’t make changes to their withholding. 

The withholding tables that shows the new Tax Cut and Jobs Act was updated in 2018 by the Treasury Department and the IRS. End of personal exemptions, standard deductions are doubled, and reduced individual income tax rates are some of the major changes from the new law. You will know if your employer follows in order what right amount to be deducted for your income tax from your pay check using the withholding tables as guidelines. 

Through 2018, the tax agency keeps on reminding taxpayers- if needed, to always double check their withholding and make some estimate payments. Retirees were encouraged to check and make sure their pension and Social Security payments have sufficient withholding tax. 

The IRS announced last month that it will waive filers who paid at least 85 percent of what they owed in 2018 on their estimated tax penalty. In order to avoid having a penalty, you should pay at least 90 percent of your tax liability. In order to avoid the same trouble in the 2019 tax year, consider a lesson learned if you owe this season. Take note on the things you should and shouldn’t do.

If you have been through major life changes like getting married and having children, then do not forget to review your withholding to avoid possible mistakes and problems. 

W-4s are what some taxpayers are paying close attention to:

  • Are you a full-time worker but has some side jobs aside from your 9-5? Then you are considered as W-2 employees with side gigs. Chances are- to cover both sources of income, you are not withholding enough in taxes. 

Rigney said that if you’re not making estimated tax payments for your side job, then there’s a good chance you’ll owe taxes. 

  • Itemizers are people who itemized their tax return and may have less withholding tax from their pay under the old tax law. But, under the new tax law, there are fewer people who can do so that’s why they should review their W-4s. 

In 2018, the standard deduction has been nearly doubled to $12,000 for singles and $24,000 for married couples who filed jointly. 

  • Families that have dependents most likely have less tax withheld from their pay. However, personal and dependent exemptions are removed by the new tax law. The applicability of the child tax credit has broadened and it will include higher-income households. 

Be sure to review you W-4 if you owed for the 2018 and if you haven’t made these updates to your withholding. 

  • You still have to re-evaluate your withholding even if you already stopped reporting at work or if you are already a retiree. To withhold from your pension, use Form W-4P and to withhold a flat rate from your Social Security check, use Form W-4V. 

Every tax season, CPAs are helping clients manage their expectations.  If you are unsatisfied and unhappy with your 2018 result, to avoid any future surprises- talk to your tax preparer or accountant about running a project for your 2019 taxes. 

You should not be too occupied with your tax return and how you cope this tax season. Instead, according to Chris Benson, CPA, and principal at L.K. Benson & Co. in Towson, Maryland that you should look at your tax liability last year versus this year and see how they stand against your income.

He added that you want to compare the tax liability to your income. Everyone wants to know if they saved money or not with the new tax bill and the best way to check is to look at liability versus income.

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