Five Most Common Tax Questions People Are Asking This Year

It’s that time of year.  Unless you needed your refund quickly and your documents were in complete order, you are now beginning to organize your stack of documents to get your taxes filed for 2018.  With all of the news about people getting smaller refunds, lots of taxpayers are worried about actually having to stroke a check when they complete their taxes.  The new Trump tax plan that took effect last year had many changes that people were unaware of or didn’t pay attention to during the course of 2018.  This has triggered a handful of questions which I will answer here in the Your Smart Money Moves column.

  1. Why are refunds smaller this year? – This is actually a pretty easy one to answer.  When the new tax laws took effect in 2018, most people quickly realized they had received a bump in their paycheck.  However, what most people didn’t do was make a new calculation on the new tax tables as to how much they should actually be withholding based upon their income and their overall potential tax deductions.  Consequently, people did get more in their paychecks and use of their money during the course of 2018, but this shrunk the amount of refund they are seeing here when they file taxes in 2019 for the 2018 tax year.

For taxpayers who itemized their deductions and had income well in excess of $100,000, they ran into a different issue.  The new tax laws created something called a SALT cap which means that your state income taxes, real estate taxes, and local taxes are all capped at a maximum $10,000 deduction.  In a state like Georgia, if you made $200,000 of income in 2018 you likely paid approximately $12,000 in taxes.  If your real estate taxes were another $6,000 and your local taxes were $2,000, this means you would have normally received $20,000 of total deductions in prior years when you itemized your deductions.  This year when you file, the cap will be at $10,000, so you will effectively lose $10,000 in tax deductions which could mean a $2,000 to $4,000 tax loss depending on your overall tax bracket.

2.What is my tax rate? – You may not know this, but you have two types of tax rates.  Your marginal income tax rate, which is the tax on the last dollar of income you earn and your effective income tax rate which is your overall income tax rate.  In the United States, we have a progressive tax system which means that you are taxed 10% on a certain amount of income and then you progressively pay more tax on the next tranche of income as your overall taxable income escalates.  We currently have seven tax brackets that start at 10% and then go to 12%, 22%, 24%, 32%, 35%, and finally 37%.  It’s important to know what these brackets are because they may affect your decisions on when you time taking income, sell stock options, or other important financial decisions. 

3.  Should I Itemize My Deductions? – This year, the standard deduction is $12,000 for a single tax payer and $24,000 for a married filing joint tax payer(s).  Thus, if your mortgage interest, charitable deductions, SALT deductions, etc. exceed your standard deduction, then you should itemize your deductions.

4. What If I Miss Filing A Form? – We’ve all experienced a situation where a 1099 statement may come in late from a company or we recognize that we didn’t report dividends from a stock we held during the course of the year.  In some cases, you may get a K-1 late from a business interest or real estate property that you hold in a limited partnership.  The bottom line is that if you forgot something you have three years to file an amended tax return and you should do just that in my opinion.  If you fail to report income whether it was on purpose or not, you not only still have to pay the tax, but could have onerous penalties and interest on the unreported income.

5. What If My Identity Was Stolen? – Unfortunately, you won’t know this until you actually file your return at which time the IRS will tell you someone already filed a tax return in your name, which will be news to you. You should check out this Tax Return Theft Blog I wrote on how to fix the problem, but it is important to immediately call the IRS Identity Protection Unit and then file form 14039 which is an IRS Identity Affidavit.  That will begin the process on notifying the IRS of the problem and they will issue you a PIN number for future years for an added layer of protection.

Ted Jenkin, CFP®, AAMS®, AWMA®, CRPC®, CMFC®, CRPS®
Co-CEO and Founder oXYGen Financial, Inc.
Request a FREE consultation: www.oxygenfinancial.net

About the author  ⁄ Ted Jenkin @ Your Smart Money Moves

Ted Jenkin @ Your Smart Money Moves

Hey!

My friends and family all think I’m a workaholic, but I say I’m just a guy that loves to help people do better in life.

My mother is still the only one that calls me by my real name Theodore Michael, my wife calls me Teddy, but for the rest of you it is just plain old Ted.

Ever since I was a little kid, I always loved money and being an entrepreneur. In fact, I still have cassette tapes of me talking to my grandmother at the age of five and my mother tells me all the time how much I played with money as a kid...

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Ted Jenkin is a frequent guest columnist for the Wall Street Journal and Headline News Weekend Express. He is the co-CEO of oXYGen Financial. You can follow him on LinkedIn @ www.linkedin.com/in/theceoadvisor or on Twitter @tedjenkin.

Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. oXYGen Financial is not affiliated with Kestra IS or Kestra AS. Kestra IS and Kestra AS do not provide tax or legal advice.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor regarding your individual situation. 

Background and qualification information is available at FINRA's BrokerCheck website.

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