What happened to my taxes?
February 3, 2019 1:11 PM Subscribe
I can't sort through the tax jargon, but did I get screwed by Trump's tax plan?
Married, filing jointly. I see this year that the standard deduction for married couple is 24,000. I got no credit for my mortgage interest or property taxes this year. In previous years I would get a couple thousand back. This year I owe a couple thousand because I got no credit for itemized deductions and got the standard deduction (using Turbo Tax). I've tried googling for answers but I am not a tax person and I can't understand the jargon.
Married, filing jointly. I see this year that the standard deduction for married couple is 24,000. I got no credit for my mortgage interest or property taxes this year. In previous years I would get a couple thousand back. This year I owe a couple thousand because I got no credit for itemized deductions and got the standard deduction (using Turbo Tax). I've tried googling for answers but I am not a tax person and I can't understand the jargon.
Yeah, it's hard to say without knowing a lot more about your finances, exactly why your tax bill went up this year.
One common answer for 2018: Your withholding was automatically adjusted down by the tax bill, but you still owed the same amount of tax. So your paycheck might have been higher throughout the year, leading to a tax bill now, even if your actual taxes paid didn't go up.
posted by serelliya at 1:24 PM on February 3, 2019 [2 favorites]
One common answer for 2018: Your withholding was automatically adjusted down by the tax bill, but you still owed the same amount of tax. So your paycheck might have been higher throughout the year, leading to a tax bill now, even if your actual taxes paid didn't go up.
posted by serelliya at 1:24 PM on February 3, 2019 [2 favorites]
Response by poster: Don't mean to thread sit, but perhaps it has something to do with not being able to claim state and local taxes as deductions this year? I tried switching to itemized, and we end up owing almost double than when we take the standard. We made less than 5,000 more last year than in 2017, so I am trying to understand why it's so drastic (went from getting about 3,000 back to now owing 3,000 with no changes in withholding last year). I guess such is life.
posted by archimago at 1:30 PM on February 3, 2019 [1 favorite]
posted by archimago at 1:30 PM on February 3, 2019 [1 favorite]
Best answer: Add your mortgage interest, property tax, and state and local taxes up. If it's more than $24,000, then yes, that particular part of the tax plan hurt you.
posted by zsazsa at 1:37 PM on February 3, 2019 [5 favorites]
posted by zsazsa at 1:37 PM on February 3, 2019 [5 favorites]
Also the personal exemption was deleted.
posted by jtexman1 at 1:44 PM on February 3, 2019 [1 favorite]
posted by jtexman1 at 1:44 PM on February 3, 2019 [1 favorite]
State and local taxes are capped as a deductible expense for itemizers at $10,000 for those filing both singly and MFJ. That could be a big reason why your itemized deductions don’t exceed the $24,000 standard deduction.
posted by cheapskatebay at 1:54 PM on February 3, 2019 [4 favorites]
posted by cheapskatebay at 1:54 PM on February 3, 2019 [4 favorites]
seconding snickerdoodle, for a lot of wage earners in states with high income taxes, strangely and coincidentally also states that went blue in the presidential election, the taxes are now higher because major deductions are fewer. including deductions that affect urban areas with public transit like employer-funded mass transit passes (previously not taxed, now a taxable benefit)
posted by zippy at 1:59 PM on February 3, 2019 [10 favorites]
posted by zippy at 1:59 PM on February 3, 2019 [10 favorites]
Best answer: Ignore the amount on the refund check (or the check you have to write). How much did you actually owe in tax, in 2017 vs 2018? It should be on the TurboTax summary. Or check I think line 63 on the 2017 Form 1040 vs line 15 on pg2 of the 2018 Form 1040.
That will give you a better apples-to-apples comparison because (as serelliya mentioned) it's possible one problem is they withheld less from your paycheck, even if you yourself didn't change anything about your withholding, so you basically prepaid less in advance in 2018 than 2017. See also this IRS alert.
posted by cdefgfeadgagfe at 2:04 PM on February 3, 2019 [13 favorites]
That will give you a better apples-to-apples comparison because (as serelliya mentioned) it's possible one problem is they withheld less from your paycheck, even if you yourself didn't change anything about your withholding, so you basically prepaid less in advance in 2018 than 2017. See also this IRS alert.
posted by cdefgfeadgagfe at 2:04 PM on February 3, 2019 [13 favorites]
It's pretty hard to get above 24K in deductions, particularly if state income and property taxes are caped at a max of 10K. Still, I would suggest trying to do the taxes with one of the other web tax prep software tools to make sure you get the same results. They're all free until you file with the exception of the time you invest.
This year, I tried H&R Block and Tax Act, and I found with both of them it was super easy to skip past entering my mortgage interest deduction and property tax. I had to really go out of my way to find where to enter them. Also, TaxAct made it pretty hard to realize that California SDI is also deductible, so if your experience was anything like mine it might be missing some deductions.
posted by willnot at 3:01 PM on February 3, 2019 [1 favorite]
This year, I tried H&R Block and Tax Act, and I found with both of them it was super easy to skip past entering my mortgage interest deduction and property tax. I had to really go out of my way to find where to enter them. Also, TaxAct made it pretty hard to realize that California SDI is also deductible, so if your experience was anything like mine it might be missing some deductions.
posted by willnot at 3:01 PM on February 3, 2019 [1 favorite]
I live in New Jersey (hullo high property taxes!) and we filed today. While we still got a refund, it was substantially lower, as in "welp I guess THAT home improvement project's not happening yet" lower. For us, it was definitely the change in State and Local Tax (SALT) deductions. Huzzah.
posted by kimberussell at 3:09 PM on February 3, 2019 [2 favorites]
posted by kimberussell at 3:09 PM on February 3, 2019 [2 favorites]
another major new change in taxes that may not affect you, but is big: spousal support (alimony) in new agreements (or modified old ones) as of 2019 is now taxable the payor, and untaxed to the payee, the reverse of how it was previously (deduction for payor, taxable income to payee)
posted by zippy at 3:19 PM on February 3, 2019 [1 favorite]
posted by zippy at 3:19 PM on February 3, 2019 [1 favorite]
Best answer: Archimago, I'm a tax lawyer, but not your tax lawyer. If you want an answer based on your personal situation, pay for an accountant to walk through your return with you.
The key thing to remember is that the only thing your refund tells you is how poorly you planned during the year. If you get a big refund, it just means you made the US Treasury a large interest-free loan (overwithholding or making too large estimated payments throughout the year). TBH, I'm actually getting my biggest federal refund in years this year, so I'm a poor planner, too--though it was especially hard with all the changes from the 2017 tax reform to forecast your personal impacts (at least without actually doing your taxes during 2018, which I was not interested in doing...). The withholding tables, which employers use to calculate the withholding due from employees' paychecks, were intentionally designed to make average people feel like they had extra money in their pockets as a result of tax reform. It was just marketing--and could well lead to smaller refunds or even tax due in April.
It's certainly true that the SALT cap is impactful. I live in a high tax state, and I think about $20K in SALT deductions was excluded from my final calcs. But if you're in a high tax state and are used to itemizing, you may well have been caught up in the AMT in past years. This year, the higher AMT exemption amount may be a fair trade off for the SALT cap and the bigger standard deduction / loss of the exemptions.
No one here can tell you what's going on with your taxes. What you should do is take your 2017 1) taxable income (line 43), 2) AGI (line 38), and 3) total tax (line 63) figures and compare them to this year to make meaningful comparisons.
What you want to do is compare tax versus income, which is your "effective rate." You may be in the 37% tax bracket (or whatever), but that's just the "marginal rate"--the rate at which your last dollar was taxed. Being in the 37% bracket does not mean that you are paying 37% of your income to cover taxes.
Generally, you want to compare "taxable income" (line 43) to the tax to get your effective rate (i.e., divide the tax number by the income number, which gives you a percentage--the amount of your income that went to paying the government). Given all the changes to standard deductions and the loss of the personal exemption, I think it's also interesting to look at the AGI, which is your income before those adjustments. But at the end of the day, it's just tax over taxable income (line 63 divided by line 43) that really matters.
I was expecting to get screwed since I live in a high-tax state, but my effective rate dropped--even despite losing $20K in SALT deductions and the personal exemption. I still itemized; the larger standard deduction didn't impact my calculations.
Do those four calculations--total tax for 2017 and 2018 divided by either that year's AGI or taxable income. That will tell you how you did under the new regime.
Regardless of how you did this year, I think with the Democrats controlling Ways and Means, there will be significant pressure to roll back parts of the 2017 Act (particularly the $10K SALT cap). So prepare for a guessing game when you do next year's taxes, too...
posted by 5845(f)(1)(D) at 4:52 PM on February 3, 2019 [46 favorites]
The key thing to remember is that the only thing your refund tells you is how poorly you planned during the year. If you get a big refund, it just means you made the US Treasury a large interest-free loan (overwithholding or making too large estimated payments throughout the year). TBH, I'm actually getting my biggest federal refund in years this year, so I'm a poor planner, too--though it was especially hard with all the changes from the 2017 tax reform to forecast your personal impacts (at least without actually doing your taxes during 2018, which I was not interested in doing...). The withholding tables, which employers use to calculate the withholding due from employees' paychecks, were intentionally designed to make average people feel like they had extra money in their pockets as a result of tax reform. It was just marketing--and could well lead to smaller refunds or even tax due in April.
It's certainly true that the SALT cap is impactful. I live in a high tax state, and I think about $20K in SALT deductions was excluded from my final calcs. But if you're in a high tax state and are used to itemizing, you may well have been caught up in the AMT in past years. This year, the higher AMT exemption amount may be a fair trade off for the SALT cap and the bigger standard deduction / loss of the exemptions.
No one here can tell you what's going on with your taxes. What you should do is take your 2017 1) taxable income (line 43), 2) AGI (line 38), and 3) total tax (line 63) figures and compare them to this year to make meaningful comparisons.
What you want to do is compare tax versus income, which is your "effective rate." You may be in the 37% tax bracket (or whatever), but that's just the "marginal rate"--the rate at which your last dollar was taxed. Being in the 37% bracket does not mean that you are paying 37% of your income to cover taxes.
Generally, you want to compare "taxable income" (line 43) to the tax to get your effective rate (i.e., divide the tax number by the income number, which gives you a percentage--the amount of your income that went to paying the government). Given all the changes to standard deductions and the loss of the personal exemption, I think it's also interesting to look at the AGI, which is your income before those adjustments. But at the end of the day, it's just tax over taxable income (line 63 divided by line 43) that really matters.
I was expecting to get screwed since I live in a high-tax state, but my effective rate dropped--even despite losing $20K in SALT deductions and the personal exemption. I still itemized; the larger standard deduction didn't impact my calculations.
Do those four calculations--total tax for 2017 and 2018 divided by either that year's AGI or taxable income. That will tell you how you did under the new regime.
Regardless of how you did this year, I think with the Democrats controlling Ways and Means, there will be significant pressure to roll back parts of the 2017 Act (particularly the $10K SALT cap). So prepare for a guessing game when you do next year's taxes, too...
posted by 5845(f)(1)(D) at 4:52 PM on February 3, 2019 [46 favorites]
Your withholdings may have been lower because the new tax rates presumed you needed to pay less tax, therefore withhold less. Look at the amount of tax you paid in 2017, compare to 2018.
posted by theora55 at 4:54 PM on February 3, 2019
posted by theora55 at 4:54 PM on February 3, 2019
TBH, I'm actually getting my biggest federal refund in years this year, so I'm a poor planner, too--though it was especially hard with all the changes from the 2017 tax reform to forecast your personal impacts (at least without actually doing your taxes during 2018, which I was not interested in doing...).
Ditto 5845. I like to make a game of coming as close to even as I can, without owing. Generally I'm happy to buy myself a mani/pedi with my refund as I'd rather the $20-30 treat and its impact on bi-monthly paychecks is minimal. I ended up higher this year even though I grew out of the student loan deduction. Last year was the first year I itemized. I don't think I will be again, it just isn't worth it anymore (single).
posted by TravellingCari at 11:09 AM on February 4, 2019
Ditto 5845. I like to make a game of coming as close to even as I can, without owing. Generally I'm happy to buy myself a mani/pedi with my refund as I'd rather the $20-30 treat and its impact on bi-monthly paychecks is minimal. I ended up higher this year even though I grew out of the student loan deduction. Last year was the first year I itemized. I don't think I will be again, it just isn't worth it anymore (single).
posted by TravellingCari at 11:09 AM on February 4, 2019
The standard deduction went up by $9K for a married couple, so the $10K cap may well, overall, not have the effect you think it's going to have.
posted by wnissen at 4:31 PM on February 5, 2019
posted by wnissen at 4:31 PM on February 5, 2019
The SALT deduction cap is somewhat misleading because your tax rate might have gone down at the same time, e.g. via the AMT changes or if you're a two-similar-incomes married couple previously paying a "marriage penalty" that has now been eliminated.
posted by serelliya at 10:37 AM on February 6, 2019
posted by serelliya at 10:37 AM on February 6, 2019
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posted by zsazsa at 1:18 PM on February 3, 2019 [2 favorites]