Now that we are deep into tax season, it is becoming apparent that when people heard about tax simplification being passed under Trump they didn’t really pay a great deal of attention. I guess the constant headlines of change to everything could have made it hard to focus, but we tax planners had a lot to learn and we dug in. In March of last year we thought we had completely lost the business meal and home equity mortgage deductions and a bunch of other “Oh no, not that” items. Over the summer, more details and clarification came out on each item and it became apparent that the cuts were more and more targeted and not as broad as first though. The short version is that it turned out the new rules are very friendly for business, and very friendly to the poor and lower middle class, but not so much for the upper middle class, especially those who work for others and primarily receive W-2 income.
Many lower middle class filers are feeling like it was hard on them, but that is a side effect of having much less withholding throughout most of 2018. Now that they are starting to understand that the extra take home pay they had been receiving was intended to stimulate the economy but also stopped them from using their tax return as a savings account, many will make withholding changes in 2019. The IRS will be putting up a new website quite soon to guide people through a “paycheck withholding checkup” to help.
There has never been a time we remember in the last 30 years that this closing thought was more true: “If you are a middle class, upper middle class or wealthy non-business owner, you need to sit down in late April, May or June with a tax planner (not a preparer) and re-learn many things you have been used to doing in the past, and perhaps learn some new things you have never done before, or you will leak cash to the IRS for skipping the lessons”. It’s that simple, do nothing and the IRS will love you!
People say, “I wish I could pay less in taxes”, but the wishes are not going to help those beggars to the bank. Only action will.