Based on the data from the Internal Revenue Service after the first week of the 2018 tax filing season, the average tax refunds were down 8.4% compare the same time last year.
While some Americans got a tax cut thanks to the Tax Cuts and Jobs Act (“TCJA”), it’s possible that millions of households, especially those in the states with high state income tax rate will see a significant decrease in refund or increase in amount due to the IRS compare to last year.
The TCJA cut rates for taxpayers at every income level and increased the standard deductions for single and married filing jointly filers to $12,000 and $24,000 respectively. However, it also eliminated and limited many deductions, which people use to reduce the amount of their taxable income. The personal exemption and state income tax were the notable deductions that were impacted by the TCJA. The personal exemption deduction is eliminated, and the state income tax deduction which includes the property taxes is capped at $10,000.
For many people who use itemized deductions, the cut in tax rates was nowhere near enough to cover the elimination of the personal exemption and the limit on the state and local tax deductions. This results in the decrease in refunds, or worse yet millions of households may have to write a check to the IRS. Below is a table illustrating the impact of the TCJA on a couple married filing jointly.
To avoid having a significant tax due, or penalty and interest on the underpayment of taxes, we recommend our clients to adjust their W-4 payroll withholding of federal income tax to account for the impact of the TCJA. For any questions on the impact of the TCJA or taxes in general, please do not hesitate to reach out to us.
* $6,000 state tax
* $10,500 property tax
* $18,000 mortgage interest
* $500 charitable contribution
For more tax related questions, please contact us directly.
Wong & Shao CPAs
17588 Rowland St, Ste 286
City of Industry, CA 91748
Office: +1 626-400-5677 | +1 626-566-8006
Fax: +1 626-956-0655
Email: info@wongshaocpa.com
Website: www.wongshaocpa.com
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