This tax season was one for the record books. It seemed like the question on the mind of everyone was, “How did the tax reform impact me?” Data provided by the IRS through 04/12/19 of this year provides us with some interesting information which we would love to share with you. We also have our own takeaways which are more anecdotal based on the experience we had working with our clients.
- Business and Real Estate owners are clear winners under Section 199A.
- Higher income earners ($110,000 for MFJ) with children previously phased out of receiving the Child Tax Credit benefit under the new rules as the phase-out threshold increased significantly.
- Households subject to the Alternative Minimum Tax (AMT) under the old rules are almost certain to get a tax break by no longer being subject under the new rules.
- Many taxpayers received a “surprise” this tax year due to the IRS reduction in withholding via the withholding tables.
- Households with 2nd homes and vacation homes (non-rented) were losers under the new mortgage interest and State and Local Tax (SALT) deduction rules.
- Capital gains are back as the market expansion continues. Gain/Loss harvesting was a help for those who did so in the 4th Qtr of 2018.
- Itemized Deduction filing is down due to the new SALT rules unless you have a large mortgage and/or made large charitable contributions.
- “Back door ROTH” contributions using non-deductible IRA contributions are becoming more popular for those not able to make regular ROTH Contributions.
- Continuing the ROTH theme, we are seeing more and more long-term ROTH conversion strategies being implemented.
- 2018 was a very strong year for the real estate market with more home sales and purchases then we have seen in a long time, if ever.
Some Data from the IRS
- The average refund is DOWN this year from $2,831 to $2,795. Not a big drop, but still a net of $7.617 Billion less in aggregate refunds this year over last. It is important to note that lower refunds are not indicative of higher liabilities. In general, total tax liabilities were down year over year, however the IRS reduction in withholding significantly impacted refunds by reducing taxes withheld during the year.
- Web Usage of IRS.gov was up 10% year over year representing 36.3 million more IRS.gov visits. This is probably a multi-factor increase. Our guess is as follows:
- More people pay their taxes online now than in the past.
- Confusion over the tax laws drove more traffic as people tried to figure out what the changes were.
- An increased number of people looked to self-prepare their returns this year due to not itemizing, and the IRS website is an easy place to turn to when looking for an authorized vendor.
- 119,427,000 tax returns were received by the IRS this tax season representing a small increase of .7% over the prior year.
- Of the returns filed, 84,435,000 claimed refunds totaling $235.975 Billion dollars.
There you have it. Tax Season 2019 has come and gone. With it came some nice surprises for some, and not so nice surprises for others. The win for everyone is that the mysteries of the 2017 Tax Cuts and Jobs Act have been revealed. Knowledge is power, and with last year behind us and reconciled, let’s start planning for a great 2019.