Many are waking up to a new reality: The shrinking tax refund. News reports, articles and internet postings are bemoaning lower refunds after filing taxes this year. As you may know this is the result of a number of factors with the new tax laws. Although the standard deduction is higher for singles and married filing jointly, there are two other factors which are responsible for smaller refunds.
Standard deductions are larger. Your standard deduction increases to $12,000 if you file as single. For married filing jointly, your standard deduction is $24,000. That’s good news for some. However, if you do not have itemized deductions exceeding those amounts, you will not be able to use them.
The new laws have also implemented a number of changes to the limits on deductions. A couple of these are mortgage interest and state and local tax (SALT) deductions. Residential mortgage interest is limited to interest paid on a $750,000 mortgage instead of the deduction on a $1 million mortgage in 2017. The new laws also cap SALT deductions at $10,000 so you may only deduct up to that amount.
A third factor is the changes to the tax brackets themselves. The amount you set to be withheld from your paychecks may not be sufficient if your income changes the tax bracket you are in. If you or your CPA did not make appropriate changes, you might find that you did not have enough withheld from your pay last year. In this case, you may see a smaller refund or may even have to pay for the deficit.
These significant changes in the tax law will affect many Americans as they prepare taxes and file for refunds. For proper tax preparation, work with your CPA in 2019 to avoid these pitfalls.
Les Merritt, CPA and CFP (Certified Financial Planner) is ready to lend assistance. He has helped families and companies for over 30 years with tax preparation and planning. Contact Les at (919) 269-8553 to assist you with filing this year. Begin making preparations the current tax year so that you won’t have to face a shrinking tax refund in the future.