Tax Reform

2 out of 3 Americans Were Supposed to Get a Tax Cut. Were You One of Them?

2 out of 3 Americans Were Supposed to Get a Tax Cut. Were You One of Them?

In 2017, a new tax reform law was passed that reduced liabilities for two out of every three American taxpayers. Now that most people have filed their first return under this law, it is time for individual taxpayers to assess how the law affected them and begin planning for next year.

About the 2017 Tax Law

The tax law passed in 2017 was known as the "Tax Cuts and Jobs Act" (or TCJA). This act altered many important aspects of the tax code, but some of the most notable changes were made to itemized deductions, personal exemptions, and the standard deductions. Several itemized deductions were limited, and personal exemptions were eliminated completely. However, the standard deduction amount increased significantly, which led to tax savings for many taxpayers. In addition, some tax brackets now have lower interest rates, and the child tax credit has been doubled.

How the Tax Cuts and Jobs Act Impacts Taxpayers

Because of several benefits included in the TCJA, a number of taxpayers saw a lower bill. Married taxpayers with children likely saw the most benefit. However, for other taxpayers, refunds went down. Still other taxpayers found that the amount owed at the end of the year did not change or even increased slightly. Increases in liabilities and decreases in refunds were especially common among single filers with high incomes, as well as those who did not have enough tax withheld during the year.

Accustomed to Getting a Refund and Didn't Receive One?

Even though most taxpayers did get an overall tax cut, that may not have resulted in an increased refund because the tax cut resulted in small increases in take home pay during year. Because tax reform was passed so late in the year, the IRS payroll withholding system was not adjusted properly for the new laws resulting in too little being withheld from taxpayer's paychecks. This in turn led to larger take home pay during the year but lower than anticipated refunds. So even though taxpayers got a tax cut overall, it may not have seemed that way. This will continue to be a problem in 2019 since the IRS is still working on a proper fix.

Preparing for Next Year's Taxes

If you were not happy with the results of this year's tax return, you can take steps to prevent the same problems for your 2019 taxes. For many people, the problem lies in the amount of tax withheld. If you don't have enough tax withheld, you will owe tax when you file your return. This can be very frustrating if you are accustomed to getting a refund.

The IRS has released updated guidelines to help taxpayers set up withholding after the implementation of the Tax Cuts and Jobs Act. If you have not consulted these guidelines, it may be beneficial to do so. On the other hand, if you already used these guidelines to set up withholding and were unhappy with the results this April, you should consider altering your withholding for 2019. Another tip for taxpayers who were disappointed with their refund and/or tax bill for 2018 is to consider taking advantage of more tax-friendly benefits at work, such as retirement contributions.

Talking to a Professional

Regardless of your situation, it is in your best interest to consult a finance professional to help you plan for future tax liabilities. A tax professional can help you make decisions that will maximize your wealth while minimizing the overall amount of tax you must pay to the U.S. government.

TaxBuzz.com has matched thousands of individuals and small businesses to local accountants, and we can help you find the right tax professional or accountant to meet your needs.

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Gordon W. McNamee

Gordon W. McNamee

Gordon W. McNamee is a Certified Public Accountant (CPA) based in Rancho Cucamonga, CA. Gordon W. McNamee can assist you with your tax return preparation, payroll, accounting and tax planning needs. <br /> <br /> 2021 is Gordon W. McNamee, CPAs 38th year in the profession. As as a former IRS agent (1984 through 1987), Gordon has been in public accounting since 1987. Gordon specializes in individual, corporate, HOA, trust, estate and payroll taxes. He also prepares financial statements and provides accounting & bookkeeping services. He enjoys making his clients feel at ease while providing a personalized professional service.

GORDON W. MCNAMEE, CPA
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