One of my favorite quotes is often incorrectly attributed to Alice in Wonderland author Lewis Carroll. “The hurrier I go, the behinder I get.” But, I know the real source. The first time I saw it was decades ago, hanging on the wall of a grandmother’s kitchen (of course, in her house it was just below the Pope and Jack Kennedy). Painted on a wooden serving plate from the Amish country, the expression is traceable to Pennsylvania Dutch English. I interpret the saying to mean, “the faster I try, the less I get done,” and the message has stayed with me ever since.
If you’re panicked because it’s tax time and you waited until the last minute, you are not alone! About 20% of eligible taxpayers in the U.S. put off filing until the last two weeks, according to the IRS. It’s human nature to want to put off something unpleasant like taxes, but we have to get them done.
While you may delay, Uncle Sam will not.
The critical thing to remember is to take your time and make sure you’re doing everything you can to maximize your refund. Every year simple oversights cost American taxpayers billions of dollars. Many folks who don’t file returns, because they may not meet income requirements, end up leaving a lot of money on the table, for example.
Get this folks . . . as of March 2019, unclaimed tax refunds for 2015 totaled almost $1.4 billion, according to eFile.com. If you are due a refund, you have three years from the original deadline to claim it. Otherwise, it reverts to the government. So, even if you don’t think you have to file based on your income, it may be worth the effort to find out if you can claim a refund!
Another example of taxpayers leaving money on the table is not claiming the Earned Income Tax Credit (EITC). This year the IRS attempted to draw attention to this credit with a dedicated “Awareness Day,” on January 25th. The benefit helps qualified low- and moderate-income wage earners with credits ranging from $519 to $6,431. The amount of credit depends on your filing status and any dependents you have (though you do not need to have dependent to earn the credit). The IRS estimates that one-in-five eligible taxpayers miss an opportunity to claim the EITC.4
If you are filing your own taxes this year, you’re in good company. Almost 43% of Americans who electronically filed their tax returns last year did so themselves, without the aid of a tax professional. In total, 53.9 million taxpayers prepared and electronically filed their returns in 2018, according to eFile.com, a 3.4% increase over 2017.5
Many experts anticipate electronic filing to continue to grow as software and services to help file taxes improves. With many free filing services available online – it’s easier and more convenient than ever for those comfortable with computers to file taxes.
Our dependence on user-friendly software to help us file has also made it easier and more convenient than ever to make mistakes, which will hold up government processing. If you are planning to e-file, please make sure to do so with great diligence and attention to detail. Double-check every line before submitting your return as the IRS will reject what doesn’t precisely align with what they expect.
According to the IRS, some of the most common mistakes made include missing or inaccurate social security numbers, misspelled names, filing status errors, math mistakes, errors figuring credits and deductions, and incorrect bank routing numbers.6 It is worth the extra effort to double-check the information on your tax return to ensure that simple clerical errors don’t get in the way of a timely refund.
Be careful also to account for all W-2s, 1099s showing income from work or taxable interest, and any other paperwork to make sure your income information aligns with what the IRS expects. Failing to report earnings can cause the IRS to flag your return, potentially for an audit.
Rushing to meet the deadline and overlooking potential errors is one problem when filing your taxes. But, this year there is a new wrinkle: The Tax Cuts and Jobs Act was passed into law late in 2017, making 2019 the first tax return affected by those changes.
So, let’s look at some of what’s changed this year.
First off, the standard deduction has almost doubled from $6,350 for single filers to $12,000, and $12,700 to $24,000 for married filing jointly. More people than ever are expected to use the standard deduction as a result.
Other significant changes this year include the elimination of the personal exemption, which may be particularly painful for those claiming many dependents. But, the revised tax code has an upside for families with children, the Child Tax Credit doubles to $2,000 per qualifying child under the age of 17.
Additionally, the income phase-out thresholds for the Child Tax Credit are much higher than they used to be. Last year the phase-out threshold was $75,000 for single filers and heads of household and $110,000 for married filing jointly. This year it’s $200,000 for single filers and $400,000 for married filing jointly. More people than ever can take advantage of this valuable credit.
One significant change made by the Tax Cuts and Jobs Act that will effect many of us here in Massachusetts is a limit to the deductions for state and local taxes (SALT). Previously unlimited, the maximum SALT deduction this year is $10,000. That puts those in states with higher average property values (anyone filing in the Commonwealth) at a disadvantage.
This tax return season also has changes to the mortgage interest deduction. Last year, borrowers could deduct interest paid on $1 million of mortgages and $100,000 of home equity debt. The deduction has been reduced to $750,000 of “qualified residence loans.” In other words, the loan must be secured by the primary or second home and meet other requirements.
The deduction for interest paid on home equity debt has been eliminated, unless the debt is used to pay for improvements to the qualified personal residence, such as an addition or renovation.
Folks, there are a lot of changes to the tax code this year. Even with the deadline looming, it pays for you to take your time and be mindful of making sure you get back every penny you’re owed.
Have a great week!
Remember to be vigilant and stay alert, because you deserve more!
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, a wealth management firm with offices in Falmouth, Duxbury, and Mansfield. Jeff can be reached at jeff@cutterfinancialgroup.com.
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