This Year’s 5 Most Common Tax Questions
Tax Day is right around the corner, and it seems like this particular tax-filing season has brought with it a pretty high level of confusion, most of it due to the effects of the 2018 tax law changes.
Here are the five most common questions we’re seeing right now:
1) What’s up with the smaller refunds? This one’s pretty easy to answer. When Congress changed the tax rates, they also lowered the withholding table, giving people a larger amount of take-home pay. In other words, you got your money during the course of last year instead of this month as a refund. Yeah, it’s kind of sneaky, but that’s politics for you.
2) Why are my taxes higher? Wasn’t there a tax cut? Yes, there was, but while tax rates went lower, we also lost some big tax deductions. People who live in high-tax states like California, New York, and several others are seeing higher tax bills because of the $10,000 cap on the state and local tax deduction known as SALT. For many people, this used to be their largest itemized deduction. So if your state and local taxes exceed $10,000, you can’t deduct your property taxes anymore. If you make between $200,000 and $400,000 a year, this probably hit you hard.
3) Should I take the standard deduction or itemize? The standard deduction was raised this year to $12,000 for single filers and $24,000 for joint filers. So if your mortgage interest, charitable deductions, SALT deductions, and all that exceed your standard deduction, then you should itemize. Otherwise, you shouldn’t. TurboTax says that about 90% of taxpayers will take the standard deduction, up from around 70% in previous years.
4) Is it true that alimony isn’t deductible anymore? The answer is that it depends. Under the previous law, if you paid alimony you could deduct it, and it was taxed to the recipient. This still holds true unless your divorce was finalized on or after January 1, 2019. In that case, the payments are no longer deductible, and the recipient does not have to include them on his or her return.
5) Which deductions have changed or gone away? The dependent exemption is gone but was replaced by a higher child tax credit. As for the mortgage interest deduction, there is now a cap at $750,000 for loans taken out after December 15 of last year. Moving expenses can now only be claimed by members of the military. And tax preparation fees? They are no longer deductible unless you’re self-employed.
So there you have it. As you know, taxes are complicated. They key is to manage your taxes efficiently so that you don’t pay more than you must.
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Raymond J. Lucia Jr. is chairman of Lucia Capital Group, a registered investment advisor and CEO of its affiliated broker-dealer, Lucia Securities, LLC, member FINRA/SIPC. Advisory services offered through Lucia Capital Group. Securities offered through Lucia Securities, LLC. Registration with the SEC does not imply a certain level of skill or training.