Now that tax season is here, many people are preparing their taxes or meeting with their accountant to have their taxes completed. Once all is said and done, many are having shock due to lower refunds than expected or even owing money to the government. Why such a drastic difference? I thought the tax law was supposed to help? All in all, the tax law was better for most, and here is why.
Although many had a lower overall tax liability if their income was the same, refunds have drastically changed for most. It is often tough to notice, but the withholding tables changed, lowering the amount you had withheld from your paychecks even if you did not change your exemption amount. Although you were expecting a higher refund, this method makes more sense. Keeping more of your money throughout the year instead of loaning it to the government provides more flexibility throughout the year. It was often hard to tell because income changes along with changes in benefits and 401(k) contributions.
When all is said and done, the tax law turned out better for most of my clients. The tax law reduced your overall tax liability, all else equal, but you might have owed due to your reduced withholding. Even though accountants did not even know the extent of the change, proper planning with your CPA should have prepared you for the change. This is one of the many reasons why I suggest using a professional to assist you. Trying to save a few bucks often costs you in the end.