• Are You Affected by the New Tax Laws?

    by Matt Roberts MFM CFP® CAP® Chief Planning Officer | March 21, 2019

    With tax season upon us, we are starting to see the impact of the new tax law. For many, determining whether the tax law helped or hurt them will be done by evaluating their refund (or lack thereof). Data from the IRS is showing that the value of refunds is down 16.7%. Does this mean that everyone is seeing a tax increase? The answer is “it depends.” For those with W-2 wages, taxes withheld from paychecks went down (probably too much) when the new tax tables started being used in February of 2018 leading to smaller refunds. For others (retirees, business owners, and independent contractors), the answer is more complicated.

    To further diagnose the issue of whether taxes went up or down, here are two examples of tax returns under the old and new tax law:

    Married Retired Couple

    2017

    2018

    Adjusted Gross Income (AGI)

    $101,000

    $101,000

    Standard Deduction

    $15,200

    $26,600

    Itemized Deductions

    $20,000

    $20,000

    Taxable Income

    $72,900

    $74,400

    Taxes Owed

    $7,216

    $6,334

    Taxes Withheld

    $8,000

    $8,000

    Amount Owed (Refund)

    ($784)

    ($1,666)

    Marginal Rate

    15%

    12%

    Effective Rate

    9.6%

    8.3%

     

    Married Couple With 3 Kids

    2017

    2018

    Adjusted Gross Income (AGI)

    $250,000

    $250,000

    Standard Deduction

    $12,700

    $24,000

    Itemized Deductions

    $43,000

    $23,000

    Taxable Income

    $186,750

    $226,000

    Taxes Owed

    $39,175

    $36,819

    Taxes Withheld

    $37,500

    $32,500

    Amount Owed (Refund)

    $1,675

    $4,319

    Marginal Rate

    28%

    24%

    Effective Rate

    21%

    16.3%

     

    You can see that the married retired couple had their taxes go down and their refund increase as a result of the new tax law. This is largely due to their top marginal tax rate dropping from 15% to 12 %, while keeping their withholding at the same rate.

    For the married couple with three kids, their marginal rate did drop from 28% to 24%, however their amount owed increased. You can see that they had $5,000 less withheld through the year, which was largely a result of the new tax withholding tables released in February of 2018. In addition, they lost $19,000 in deductions due to the new SALT (State & Local Taxes) limitation of $10,000. In 2017, they were able to deduct property taxes of $10,000 and state income taxes of $20,000. In 2018, these two deductions were limited to $10,000.

    Overall, those with W-2 wages and high property and state income taxes will be the most surprised when they file their 2018 tax returns. Syverson Strege encourages you to work closely with your tax preparer to ensure that you’re not surprised as well.

    Getting Started is Easy!

    Schedule An Appointment