Tax Returns Are Smaller and More Are Paying Taxes

Tax Returns Are Smaller and More Are Paying Taxes

The returns(pun intended) are beginning to come in during mid February and a great majority of Americans, that normally file early, are getting a big surprise when they go to pick those returns up. Some, whom never had to pay a dime in taxes the last few years, are having to shell out monies.

Most of the people in this category of early filer don’t itemize their returns and have relied on the short form 1040 for handling their taxes. Without income or family changes, refunds have been pretty much a start to help them out in the New Year. A little home improvement, an upgraded vehicle, payoff some holiday credit debt.

Granted, paying in extra to the Government through the year just to get a refund, is not really the way to go. To have that little extra in each paycheck week to week and say putting it into an interest bearing account would make more sense.

But that’s not what the people at the top, mainly Republicans in the House of Representatives and in the Senate and the one sitting behind the desk in the Oval Office, told the American People. This was a tax cut that was showing up in their paychecks.

Tax Cuts and Jobs Act(scam)

H.R.1 — 115th Congress (2017-2018) the first bill passed in December of 2017 for the house of representatives fiscal year and it was nothing but a power grabbed, complete give away to the wealthy. Yet it also included a provision that allowed the creation of an arrangement to move forward for oil and gas leases, along the Coastal Plain of the Arctic National Wildlife Refuge(ANWR) in Alaska. Not only a big give away to the wealthiest in the country, but also to big oil.

The House voted to approve it 227 to 203, with 12 republicans also thinking it was a bad idea and no democrats voting for it. A reconciled bill barely passed the Senate 51-48 with all republicans voting for it and all democrat’s voting against.

Even if you don’t understand ‘government speak’, you can read thru that bill and see 99% of it helps people that are already millionaires. Give it a look…

How The Scam Went Down

What is hard for many to understand, those that saw a little more in their paychecks through the year, is that the adjustments made to the ‘withholding allowance’ was changed by this new law, and you weren’t actually getting a tax break. A tough pill to swallow for all the support you gave to your lawmakers.

In other words, for the sake of making a point, if you were expecting a $2,000 refund like you have in the past, but you received $34.00 more a week per paycheck, it would work out like this. 34 x 52 weeks of pay totals $1,768. That’s extra money you ‘took home’ during the year, but it didn’t change the tax liability you still have to the government.

Instead of that $2,000 refund, you now subtract the $1,768 you already received, leaving you with a smaller $232.00 new years check, or even having to pay some taxes, depending on your household, new income or from lost deductions.

That’s about the only way the republicans, who held the House, the Senate and the White House at the time, could sell it to the American people and get it into law, a few more weekly dollars.

As folks that were really paying attention noted, this tax cut bill never came up for a vote. It was stuffed into ‘filibuster proof’ appropriations bill, without any Democratic support. Then it was rammed thru to give the Nations richest 2% or so a massive tax break, big oil more room to ‘drill baby drill’, while leaving the majority of Americans paying the bill.

The Tax Policy Center has a great description and analysis of the tax law when it was first passed, and many of the examples in the graphs and conclusions are coming true today.

A Look Back

A personal exemption for the tax filer, along with their spouse and any dependents, of $4,050 each, was available for the year 2017 tax season. A tax filer could either choose to itemize their deductions or take the normal standard deduction for their filing status.

For 2017 it was $6,350 if you were single or for each married person filing a separate return. The head of households could also take a standard deduction of $9,350 for being so. If you were married and filed jointly, your standard deduction was set at $12,700 for the two of you together.

And a Look Ahead

For 2018 and through 2025, the personal exemption has been taken away, which can be a major hit on anyone’s tax bill. To try and compensate for that part of the law, the standard deductions increased to $12k for single and/or separate married filers, to $18k for the head of a household and $24K for married and filing joint return.

This was designed to get closer to the ‘promise’ of being able to fill out your tax returns on a Postcard, remember that talking point? Yet, they are just trying to convince you to do the simple tax form and not get every deduction you may be entitled to and in turn paying more than you really need to.

Another little bit of information that top Congressmen and Senators never mentioned when touting the bill, was the fact that the standard deductions, beginning in 2019, become adjusted to inflation, so the word ‘standard’ is misleading. You would have to keep up with that ‘inflation’ figure to have a handle on your tax liability.

A few taxpayers might make out Ok with the elimination of the personal exemptions with the increased standard deductions, only moving thru this tax season will tell us. But if you have many dependents, or used to itemize your deductions, the changes could actually add to your tax bill.

Other ‘Now Missing’ Deductions

If you’ve read this far, let’s call it what it is, the Tax Cut and Jobs Act was/is nothing but a scam to lower the tax “burden” on the wealthiest of individuals in this country.

Regular taxpayers that used to itemize to get/keep most of their hard earned money, have now lost many of the deductions that use to be reasons to prepare an itemized return. While some are eliminated, others are greatly reduced.

These all have begun with the 2018 filing season
Home Interest Should not affect the majority of people, as $750k in debt must be hit
State/Local Tax- Can claim no more than $10k total of State and Local Property Tax, State and Local Income taxes or sales taxes.
Home Equity Interest You now will not be able to deduct the interest on home equity financing, unless you use it for home improvement, investment or business purposes. Paying off other debt does not qualify
Medical Expenses Reduced from 10% to 7.5% of your adjusted gross income(AGI) This affects lower income folks the most, as usual
Misc. Itemized Deductions If you are an employee and work from home, you can no longer deduct certain expenses, such as home office, fees and professional expenses.

What It All Means

Instead of truly making it easier to file your taxes, you should have been informed to consult a tax professional by the folks in charge, as soon as this law was passed. If you work as an employee, you have or will most likely be in for a surprise as you go to pick up your return.

This new scheme is designed for the ‘business’ person and if there’s any way you can get ahead of, or at least play the game on a somewhat even playing field, do what you can to become a business owner of some sorts during the early part of 2019.

You most likely have thought about it at one time or another, take a passion you have, and if nothing else, start a part time gig to get things rolling. Anything to make some of this mess work for you and become used to filing an itemized return in the future. Save all receipts for your ‘start up’ business and or hobby.

Yes, some hobbies can be classified as a legitimate expense. Main school of thought should be to keep as much of your hard earned money as you can and starting a small business is one way to make that happen. You don’t have to and probably don’t want to make a ‘profit’ the first year and no one requires you to, even for the first few years.

Confront the People Who Brought Us This Mess

One final suggestion would be to ask your Representative or Senator how they feel the new law is working out for them. I’d bet you get nothing but an ‘everything is fine’ with the new law, and for folks in their tax situations, it truly is. Or if you happen to see Paul Ryan or Mitch McConnell on the street, ask them how they sleep at night.

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