Filing Income Tax Returns for 2018

[KathyInAR]

This is probably the first time in, like forever, that I had my tax returns finished before the end of January. The verdict for the "reduction" in tax liability under trump's tax bill for me was 0.8% in the "effective tax rate" over the effective tax rate of the year before. Less than 1%, so not a big difference.

For 2017 I had a combination of approximately $11,400 in itemized deductions plus the $4,050 ($4,100 for 2018 pre-new tax bill) personal exemption for a total of more than $15,500 to reduce my adjusted gross income under old tax law. Under the new tax law, I wouldn't have enough itemized deductions to exceed the standard deduction and would have no personal exemption so my taxable income would be higher for no other reason than that (disregarding any increases in my adjusted gross income).

So, knowing that on January 2, 2018, I took $101,255 from my savings account and paid off my mortgage so that I would not be paying the approximately $4000 in interest in 2018 in addition to having a reduced "deduction" in my adjusted gross income. Actually, I am happy that, I considered, the new tax bill to "force" me to do this as I should have paid off my mortgage as I had originally planned to when I sold my house in Louisiana; but, because I had been paying both mortgages for 5 months and it was relatively painless, when I sold that house I decided to just add the equity I received to my savings. So in 2018 each month I just added what had been the mortgage payment to the amount that I transferred to savings to build it back up.

I was pleasantly surprised while preparing my federal tax return that in addition to the $12,000 standard deduction that an additional $1,600 was added for over-65 unmarried filing status for a total of $13,600 reduction of the adjusted gross income arriving at the taxable income.

Another thing that came to light with the new tax bill, (and this won't affect those of you in Florida) is that some states require a taxpayer to use the same form of deduction (either standard or itemized) as they use on their federal tax returns. Thankfully, Arkansas does not do this. Their standard deduction is only $2,200 and my property taxes and contributions greatly exceed this amount and I was able to used those itemized deductions to reduce the amount of state income taxes. If I had not been able to do so, the increase in state income taxes would have exceeded the amount that I saved under the new tax bill on my federal taxes by about double. Hopefully, other states that have required the same type of deductions will have made adjustments in their tax requirements so that this doesn't happen. If not, there may be a lot of our folks in this country with a very nasty surprise.

Happy income tax filing everybody!

[Jeannie]

Have mine started and will finish them tonight and I am so happy that it looks like I do not owe any money. I was very worried I would.

[KathyInAR]

Hope not!

[Stumpy McDugal]

About $150 more than last year.

[KathyInAR]

About $150 more than last year.

Was this because you had a significant increase in income or because you lost the exemptions?

Do you know the “effective tax rates” for both years? Is so, how did they compare?

The way it looked to me was if it is a single person or couple with no dependents who ordinarily itemized and their deductions were about the same as the new standard deductions they would end up paying more because of the loss of the exemptions. Families with children would fare better because of the child credits.

[Stumpy McDugal]

Was this because you had a significant increase in income or because you lost the exemptions?

Do you know the “effective tax rates” for both years? Is so, how did they compare?

The way it looked to me was if it is a single person or couple with no dependents who ordinarily itemized and their deductions were about the same as the new standard deductions they would end up paying more because of the loss of the exemptions. Families with children would fare better because of the child credits.

I don't analyse my taxes that closely. Everything is basically the same, maybe a small income increase. Mostly I want to keep it all even. If I'm between a $400-600 refund I'm good.

[KathyInAR]

I don’t want a refund, I just want to make sure I don’t owe more than $1,000 and have to pay a penalty. Last year I owed just over $300 so not knowing exactly how I’d fare with the new tax bill I increased my withholding. This year I am getting a refund of $369, so last night I went online and reduced ny withholding by $50 for the next 10 months. I would rather owe them, than them owe me. I will just earn that 1.6% APR...

I guess it was my job as a tax consultant eons ago that make analyzing my tax return second nature.

[Stumpy McDugal]

Refund electronically received yesterday.

[Jeannie]

Mine too, glad to have it done for this year.

[KathyInAR]

Anyone get caught up in this trap? Hope not!

https://www.cnbc.com/2019/02/07/fail...e-for-you.html

If you failed to withhold enough tax in 2018, the IRS has a nasty surprise for you

Some early filers took to Twitter to complain about owing taxes or receiving smaller refunds after submitting their 2018 tax returns.

As part of the Tax Cuts and Jobs Act, the IRS and Treasury adjusted the tax withholding tables, which affects the amount of income taxes withheld from your pay.

• Be sure to review your return and your paycheck to ensure you’re withholding sufficient pay in 2019.
• We're only in the second week of tax season — and some filers are already in for a nasty surprise from the IRS.
• This spring marks the first time taxpayers are submitting returns under the Tax Cuts and Jobs Act, which went into effect in last year.

Though the 2018 filing season only started on Jan. 28, some early filers are discovering that they either owe the IRS or they'll be getting a smaller-than-expected refund from the taxman.

Indeed, the average refund for the week ending Feb. 1 — the first week of the new tax season — was $1,865, according to data from the IRS. In comparison, the average refund issued for the year-ago period was $2,035.

These taxpayers aren't alone, either.

About 30 million people, or 21 percent of U.S. taxpayers, are expected to owe money to the IRS this tax season, according to a report from the Government Accountability Office, a legislative agency that provides data to Congress.

"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," said Nathan Rigney, lead tax research analyst at the Tax Institute at H&R Block.

Here's who might expect a tax bill or a smaller refund this spring and why.

New withholding tables

In 2018, the Treasury Department and the IRS updated the withholding tables to reflect the new Tax Cuts and Jobs Act.

Major changes from the new law include the end of personal exemptions, the doubling of the standard deduction, and reduced individual income tax rates.

These withholding tables are guidelines that your employer follows in order to deduct the right amount of income tax from your paycheck.

The tables are intended to work alongside Form W-4, which you can use to tailor your taxes based on whether your spouse works, whether you have children and other factors.

Withhold too much, and you get a refund in the following year — but you've given the government an interest-free loan.

If you fail to withhold enough taxes, you'll see more cash in your paycheck in the immediate term, but you'll owe the IRS the following year.

The tax agency has been reminding taxpayers through 2018 to take a second look at their withholding and make estimated payments, if needed.

Even retirees were encouraged to ensure they were withholding sufficient tax from pension and Social Security payments.

Last month, the IRS announced it would waive the estimated tax penalty for filers who paid at least 85 percent of what they owed during 2018.

Normally, you have to pay at least 90 percent of your tax liability in order to avoid the penalty.

If you owe this season, consider it a lesson learned and do what you can to head off the same troubles in 2019.

Watch your back

It's generally a good practice to review your withholding, especially if you've been through major life changes, including getting married or having children.

Some taxpayers should pay even closer attention to their W-4s:

• W-2 employees with side gigs: Got a side job in addition to your 9-to-5? Odds are that you aren't withholding enough in taxes to cover both streams of income.

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

• Itemizers: Under the old tax law, people who itemized their tax returns may have withheld less tax from their pay.

However, fewer people are expected to itemize under the new tax law, so they should review their W-4s.

That's because the standard deduction has been nearly doubled to $12,000 for singles and $24,000 for married couples who file jointly (2018).

• Families with dependents: Previously, it may have made sense for families to have less tax withheld from their pay if they had dependents.

However, the new tax law has done away with personal and dependent exemptions. It also broadened the applicability of the child tax credit to include higher-income households.

If you haven't already made these updates to your withholding and you owed for 2018, be sure to review your W-4.

• Retirees: You may have stopped punching in at work, but you still need to reevaluate your withholding. Use Form W-4V to withhold a flat rate from your Social Security check or Form W-4P to withhold from your pension.

[Jeannie]

I received my state tax refund already. Federal has not been processed yet.

[Jeffrey]

This year I'm getting a pretty sizable refund for a change.. just have to think of what to spend it on. Maybe a nice down-payment on a new Chevy Silverado Offroad pickem' up truck. Then I'll need to find a nice size utility trailer to pull behind it with my off-road racing toys.

[Kotch]

We made out quite well with the new tax law. We banked the difference in what was withheld each month just Incase we owed, and we still got a nice amount back on top of that.

[KathyInAR]

We made out quite well with the new tax law. We banked the difference in what was withheld each month just Incase we owed, and we still got a nice amount back on top of that.

Thanx for sharing your experience.

[KathyInAR]

The test of whether the new tax laws helped an individual taxpayers or not is not in the amount of the refund but rather the amount of the tax liability (the actual taxes paid). A refund is only the amout that you overpaid during the year. Think of it this way, if you are shopping and as you check out the cashier says, “That will be $14.50.” You hand over $15.00 and receive back 50-cents change. The guy behind you in line buys exactly the same item, but when told that it is $14.50 he hands the cashier a $20 bill and receives $5.50 refund. The cost was exactly the same for both of you, you each just “paid in” more than the actual and your overpayment was returned to you.

Of course this doesn’t apply to any monies that one receives in the form of the earned income credit. And there are certainly some that receive more favorable treatment under the tax laws, always has been and likely always will be.

An example of this would be that two families with exactly the same amount of income and deductions where one family consists of husband, wife and two children; the other family consisting of husband, wife and both their elderly widowed sickly mothers for who they provide well over half their support. The family with the two children will have a tax liability of $4,000 less than than the family with two poor sickly mothers.

[Kotch]

I look at it this way. We saved a good sum in our savings throughout the year for banking the difference and the refund is added savings. Now we can decide the way to spend our money and not the Washington elite making that decision. Anytime we get money back and don’t owe is a good tax year.

[Fastcar]

I disagree. I figure I can do more with my money than placing it into a non interest bearing savings account. Not they are paying anything. As long as we are paying no more than $500.00 additional a year I'm happy.

[Jeannie]

I was very relieved not to owe. I too had put money aside just in case I had to pay. New state and now paying state taxes and had no idea what to expect.