Many average Americans aren’t seeing the kinds of refunds they expected in the wake of President Trump’s Tax Cuts and Jobs Act – instead, it’s wealthier people that are tending to see larger refunds. That’s according to Lance Weiss, a certified public accountant and partner with SFW Partners, LLC in St. Louis.
“You can’t argue with the math,” Weiss said during Monday’s St. Louis on the Air. “The [new] tax code was really designed to give bigger refunds to higher-income taxpayers, and that’s exactly what it’s doing.”
He added that most people probably did see “their total tax liability” drop, however.
“You can’t just look at that single metric of, ‘What’s my refund?’” Weiss told host Don Marsh. “You have to look at it in terms of, ‘What’s my total tax liability, how much did I pay in – and that’s really where the big change is [and] why the refunds are so much smaller, because people paid in so much less. … Their weekly paychecks were most likely a little higher.”
With the spring deadline (April 15 postmark) for filing state and federal returns drawing closer, Weiss fielded a wide range of questions from Marsh and from listeners. Four of those exchanges were as follows.
Marsh: What are the numbers with regard to the new standard deduction?
On a married-filing-jointly return, the standard deduction is now up to $24,000, and in 2017 that number was just over $12,000. So it nearly doubled. But they give us that [while] they took away the deductions for exemptions. And those were just over $4,000 per year in 2017, so in ’17 a married couple with two kids had $16,000 [in] exemptions and another $12,000 [in] standard deduction, so they had about $28,000 total. Well now they only have $24,000 total. So that’s where some of those who are feeling a tax increase from the tax act – most of them come from that arena.
Marsh: Are tax returns a simpler process now?
With the doubling of the standard deduction, very few people now itemize deductions. So it’s easier – it’s easier to do the easy returns. It’s much harder to do the business returns. There were some dramatic changes in that arena.
Marsh: Why would it be harder for the business returns?
They introduced a new deduction called the Qualified Business Income Deduction, and any qualified trade or business is eligible to pass that deduction on through to the owners – so, if you have an S Corp or a partnership, maybe real estate activities, and [that’s] really where the complication comes in. Because for a real estate activity to rise to the level where it’s eligible for this Qualified Business Income Deduction, that real estate activity needs to qualify as a trade or business. And they didn’t define that term for us, so it’s kind of a facts-and-circumstances test.
Listener: Why are all the deductions that I used to be able to take no longer available, such as claiming union dues?
All of those deductions that were categorized as Miscellaneous Employee Business Expenses – and that includes union dues and special work clothing and unreimbursed entertainment … are gone. … What I’ve read, as far as the “why,” is [that] since they doubled the standard deduction they were hoping to offset whatever benefits someone might have had by having to take the time to track all of those miscellaneous deductions. So our fees, for example, tax-preparation fees, are no longer deductible by people. The investment management fees [are also] no longer deductible.
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