Tax Returns Are Down! How to "Prevent" It Next Tax Season
THE BIG THING I WANT YOU TO KNOW:
What happened to everyone's tax return? The early reports say the average refund is 8% less. There is actually more to the story and this opens up a conversation about a fresh approach to taxes that can benefit you all year.
is the irs stiffing us on this season’s tax returns?
If you’re on top of your tax game (or you really want your long-awaited refund) and you’ve already filed for 2018, you might be among the Americans who are mildly freaking out that your refund is less than what you normally receive. The average refund last year was $2,000 per person (!)
We’re all conditioned to receive a fat check, and no one likes getting less money or — gasp — owing money. According to the IRS, the majority of us can expect an 8 percent drop in our returns this year.
I recently sat in with cnn’s show new day to help break down what’s happening and try to make it clear about what to expect in this return season.
Let’s look at How We Got Here: The Tax Cuts and Jobs Act
(This is reads like history lesson. It’s brief, but it’s important. Read it and then read how it matters to you below. #JustBeingHonest)
In December 2017, the massive tax overhaul known as the Tax Cuts and Jobs Act (TCJA) was passed by the Trump administration.
Accountants and politicians aren’t exactly known for being straight to the point kind of folks. True to form, a 1,000+ page document filled with tax jargon was released and explained the impending tax code changes. In layman’s terms, we received the adjusted withholding tables that reflected the new colossal tax laws and its biggest changes:
The State and Local Tax deduction, also known as SALT, was capped at $10,000;
The real estate mortgage interest was capped at a maximum of $750,000 in principal balances, as opposed to the former $1 million limit.
If you live in a state (especially those of you living in tax-heavy states — looking at you New Jersey and California) where you rely on those two deductions, you got the rug pulled out from underneath you.
For most middle-class folks, the doubling of the standard deduction meant you saved some money. But I can see the angry mobs gathering in the distance because I know a lot of you will say that you didn’t get a bigger refund…. if that’s you, keep reading.
Going Forward: I Want You to Re-Think Your “Refund” Completely
Here’s the truth — You may have to reexamine your pay stubs, but you DID get a little bump to your paychecks thanks to the TCJA.
Say your household brought in $70,000, it’s likely you saw an extra $40 on your paycheck every pay period. Congratulations…?! *sarcasm* Again, it’s likely you didn’t even notice but that doesn’t mean it didn’t happen. I get that it’s a let down because $40 barely covers the cost of a night out or groceries, BUT when you add up $40 every pay period over the course of the year, that’s suddenly a lot of money!
You might have had $1,000 more in your wallet over the course of 2018 because of the tax change, so it makes sense why your refund might be $500 less than it was last year.
Sound Financial Advice for everyone who expects to get a Refund
Yes, a lot of friends I know and clients were expecting the return to come in the mail and had a plan for that check. Here’s our team’s financial advice for anyone who receives a refund. You have two options (and forewarning only one option is good).
option #1 - up your withholdings & return to getting a bigger refund
How? Simply walk to your HR department and raise your withholding. You’ll take home smaller paychecks, but you’ll return to that bigger refund you’ve come to love. Think of it as asking Uncle Sam to hold on to your money and then he’ll return it come tax season 2020.
I’m sorry to burst your bubble, but I think it’s a terrible idea for the U.S. government to essentially babysit your money.
Why? You don’t have access to your money and you don’t get the opportunity to collect interest on your money.
option #2 - Get an even smaller return next year, but have strategy with your larger paycheck each month
How? Run to your hr department and slash your withholding
If I was the dictator in this scenario, I’d love if it you got NOTHING back. That’s right. ZERO refund. Drop your withholding, pay only what you need and AUTOMATE a portion of your paycheck into a savings account. To make it even harder on yourself to spend that money, ask your company to take out additional money and deposit it into a different account with a different bank.
Whatever you have to do to keep that money liquid - DO. IT.
many of us budget and earmark every incoming dollar, so when there’s a change to that incoming amount, it’s a heavy burden to bear.
Imagine The Possibilities For Next Years Return & Beyond… If You Make this Change.
Give yourself something greater than a tax refund this year, and gift yourself an exit ticket on the financial merry-go-round.
Financial mistakes happen (and I’ve made about 95% of them) but it’s time to stop borrowing against next year’s tax return to pay off the previous year’s credit card. This isn’t a good plan, friends!
If any of this sounds familiar or appeals to you, but you don’t know where to start. The first step can be as easy as reaching out to our team of financial planners. There’s a way create demonstrable success year over year. There’s a way to live so you won’t have to rely on tax windfalls to bridge yourself between life’s costly surprises.
Let’s put your money in your pocket and underline it with a personalized strategy to fit your goals. That’s where the real magic happens.
Financial temptations are difficult to curb. It takes will power (and often automation) to set yourself up for success.