Could This Year’s Tax Refund Be Bigger Than Last Year’s?
Could This Year’s Tax Refund Be Bigger Than Last Year’s?
If you’ve heard anything about the 2019 tax season, it’s probably that refund amounts are way down. That storyline has made a lot of news. And opponents of the Tax Cut and Jobs Act (TCJA) have definitely used it as “proof” that the changes were just designed to help the wealthy. There are many factors that have played a role in refunds being lower. Most notably, the government was withholding less money from taxpayers’ checks, which means there is less money to give back in their tax refunds.
Top Reasons for a Bigger Tax Refund
But despite the disappointing results for most taxpayers, the news is not all bad. In fact, in some cases, taxpayers will actually be seeing bigger tax refunds this year. Every situation is different, but here are some factors that could lead to a bigger refund in 2019.
The Marginal Taxes Rates Have Decreased – the number one reason you could see a bigger return is because the tax rates were lower in 2018. If you dropped to a lower tax bracket then your overall tax debt will have gone down. Additionally, even if you’re in the same bracket, your tax debt might still be lower because the tax percentages have gone down for many taxpayers. It is still possible that some taxpayers will see an increase, but most people will see their taxes go down.
A Larger Standard Deduction – this is a tricky one, because for most taxpayers this will help reduce their overall tax bill. On the other hand, for people who used to have a lot of itemized deductions, the new higher standard deductions could hurt. But for small families, with few itemized deductions, this will be a big help come tax time. And it could lead to a larger refund.
The Child Tax Credit – if you have young children the changes to the child tax credit could help you get a bigger refund. First, the credit has been increased to $2,000 per qualifying child under the age of 17.And the amount that’s refundable is $1,400.Additionally, the income phase out for this credit has increased from $110,000 to $400,000.
Self-Employment Income – another reason you might see an increased tax refund is pass-through income. If you earn money from self-employment or from a business you own, it can be structured as pass-through income. The new law allows you to deduct 20 percent of your self-employment, or pass-through, income off the top. In other words, if you make $50,000 of self-employment income, you get an automatic $10,000 deduction. It won’t work for everyone, but most people who earn self-employment income can take advantage of this deduction. And it could increase their refund.
The Main Reason Your Refund Is Smaller
Now back to the bad news. The main reason that most taxpayers have seen, and will continue to see, a smaller refund, is because of their withholding amount. People who didn’t adjust their W-4 withholding have already received the extra money in their payroll checks that they would’ve received in their refunds.
We hope you found this article about “Could This Year’s Tax Refund Be Bigger Than Last Year’s?” helpful. If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page or our website at www.GROCO.com. Unfortunately, we no longer give advice to other tax professionals gratis.
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Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com. GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.
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Introduction (teaching business success at Barr Business School) In this interview, Alan Olsen, CPA, MBA discusses teaching business success with Dr. Frumi Rachel Barr. Dr. Frumi Rachel Barr is the Founder and Chief Mentor at the Barr Business School. Transcript: Alan Olsen Hi, this is Alan Olsen and welcome to American Dreams. My guest today is…