For the majority of tax filers, tax season is over. April 15 marked the last day to submit your return – unless you filed an extension. So, how’d the season go? Below is an industry-wide recap plus a little tax filing myth-busting insight.
- The IRS reported the total number of 2018 returns filed so far is 137,233,000. The number of 2017 returns filed was 136,919,000.
- An additional 14 million households claimed the Child Tax Credit on their 2018 returns compared to 2017.
- The average refund amount was roughly the same as in 2017.
- The number of total refunds increased slightly, going from 95,434,000 to $95,737,000. That’s a .3 percent increase.
- The IRS reported a $4.4 billion decline in the total tax refund value. Last tax season, the refund total was $265.326 billion, and this year it was $260.919 billion.
- The average individual refund dropped in value 2 percent from $2,780 to $2,725. That’s likely due to the total tax liability decreasing.
- Roughly 4 percent more filers prepared their own returns. One percent fewer individuals used a tax preparer.
- The total number of 2018 returns e-filed is 55,788,000. The total number of 2017 returns was 53,532,000.
- The Tax Cuts and Jobs Act increased the share of households that didn’t pay federal income tax by about 2 percentage points.
Myth 1: Tax filing got easier.
For some tax filers, the 2019 tax season was easier. The increase in the standard deduction made that possible. According to the Tax Policy Center, the estimated number of people itemizing their deductions this past season fell from 46 million to 19 million. Fortunately, for those individuals, that meant they spent a lot less time preparing their tax return than they did in previous years.
But for other tax filers, that wasn’t the case. Since Forms 1040A and 1040EZ were eliminated, individuals with very simple returns had to file Form 1040, which is a more complicated form.
Additionally, some filers may have been unsure whether the standard deduction was more beneficial, so they still took the time to calculate all of their deductions. In the end, the standard deduction may have come out on top, and they were out that time spent working through their expenses. The good news: as long as their tax situation doesn’t dramatically change next year, they now know claiming the standard deduction is the right move to make.
Myth 2: I don’t need to adjust my withholdings because I got a refund this year.
If you received a tax refund this year, that doesn’t necessarily mean you’ve mastered your tax situation. It’s still best to perform a “paycheck checkup” to determine if you’re withholding the right amount from your paycheck.
Despite the changes in the tax law, it’s still better to receive as small of a tax refund as possible. Tax refunds are merely money you earned throughout the year but let the IRS hold onto completely interest-free. By adjusting your withholdings, you can keep more of your money during the year and put it to better use. For instance, you could add it to a retirement account or to another investment opportunity that will build your wealth over time. You could also use it to pay down debt so you don’t continue to pay high interest rates on that money.
To quickly check if you should adjust your withholdings, use TaxAct’s W-4 Withholding Calculator. If you decide you want to make an adjustment, login to your TaxAct account and let the product help you to calculate the right allowances to claim as well as complete the form for you to submit to your employer.
Myth 3: My tax refund was smaller than I expected, so the Tax Cuts and Jobs Act hurt me.
If your tax outcome wasn’t quite what you expected, you’re not alone. The majority of tax filer’s outcomes changed from what they were used to this past season. However, that doesn’t automatically mean the tax reform changes didn’t work in your favor.
Because the majority of individuals didn’t adjust their withholdings in 2018 to accommodate the tax law changes, their tax outcome very likely ended up surprising them. Some received a lower refund than anticipated and others owed money for the first time. Despite that change, comparing your refund amount isn’t the right way to determine if tax reform was good to you.
Instead, you need to compare your total 2017 tax liability to your 2018 tax liability. How much did you pay in total income taxes each year? If your tax situation didn’t change much from year to year, it should be fairly easy to compare the two. Dig out your 2017 tax return to find how much you paid in income taxes. Then compare that number to what you paid on your 2018 return. Was it less? Was it more? If you paid less income tax in 2018, tax reform actually helped you even if your refund was lower than you’d like.
If your tax situation changed from year to year, it’s a little harder to compare. To know for sure, you’ll need to complete a 2018 return using your 2017 data. Once you have that outcome, you can compare the two years. (Just remember not to file the return!)
Source : TaxAct Blog