A recent headline stated that clients were “surprised by tax bills following reform”. Of course, the income tax – over one hundred years old – should come as no surprise to anyone. Furthermore, with all the hoopla that surrounded the 2017 tax law overhaul (boy is the term reform ever abused in describing most any instance of change) any thinking person would be on notice to either consult with a tax professional or take advantage of the plethora of material on the internet to learn a bit about the changes and what to expect.
The article mentioned that some taxpayers were disappointed in the size of their refunds but then went on to say that many of these same taxpayers had enjoyed a larger take home pay over the course of the year due to lower withholdings. Doesn’t that mean that at least some of these taxpayers received money right along all year without making an interest-free loan to the government to be later (next year) repaid as part of the refund? How could these folks not understand the total amount of taxes paid and net income received over the course of the year or the trade-off in timing of receipt of that money which the refund represents? This is not exactly rocket science.
Then there is the new limitation on the deduction of certain state taxes paid from federal taxable income. How is that not a change which is progressive in nature, affecting the wealthy much more than, say, the middle class? The calculation is pretty simple – if you pay a state $30,000 in combined income and property taxes – you get to deduct $10,000 of that from your federal taxes or instead take the standard deduction. Of course, you can also deduct all or at least most of your mortgage interest if that will take you above the standard deduction threshold. Again, this is something that most taxpayers should be able to plan for during the year and not be surprised when it is time to file the tax return.