[UPDATE] Re: Taxes question -- why is my refund going down...? (Time to call it a day!!!)

[milovany]

UDPATE:

Someone send in the clowns (wait, don't bother, they're here!).  I just took a screen shot of the tax summary both with and without forcing the standardized deduction so I could compare the overall results side by side; I wanted to see where the differences were.  Once I pasted both "snips" in a Word doc, I noticed that one of them said "Your Refund" and one said "Amount You Owe"! Well, ayup, that thar would account fer the number a-getting bigger!  :lol:   I'll stick with the itemized deductions (and go find more of them!).

 

Carry on ....

 

---------------------------

 

OP:

I've done my own taxes for years, currently using TaxAct for the last several (prefer it over TurboTax). For some reason that I can't figure out, this year when I remove any deductible expenses for either my business or on Schedule A (itemized), our refund goes UP.  It's always worked the opposite way.  Would this have to do with level of income?  Our income has increased somewhat over the last year.  It's throwing me off mentally.  I'll just go remove all deductible expenses if they're lowering my refund.  I don't have to claim them. 

[happypamama]

Since you have several children, your standard deduction is pretty high. Is it possible that your refund is first calculated with the standard deduction, and once you switch to putting in your itemized deductions, those aren't as high as your standard deduction?

[5of5]

Agree with happypamama's thought, although you'd think that a good program would catch that, and suggest sticking with the standard deduction.

[Twigs]

Could it be that the deductions are changing your tax brackets and therefore your tax rate?

[milovany]

Yes, those are things I've thought of I just want someone to tell me what exactly it is (lol!).  I've used TaxAct for a long time and it's always chosen which deduction to use depending on which one provided the bigger benefit.  I'll go through it step by step and see if it's missing something.  I also think the tax bracket thing could be possible.  I did just enter in an amount for charitable deductions that wasn't there before, and it did make my refund go up but then when I then went and removed the mortgage interest deduction, the refund went back down.  So one category made it go up, and one made it go down.  Very weird. 

[LucyStoner]

Are you using the standard deduction or itemizing?

 

Is your income in EITC territory? That is one of the most common situations where a lower amount of earned income might reduce your refund. That particular credit gets larger as your earned income grows, to a point, and then decreases until your income is too high for the credit.

[SKL]

Do your business deductions reduce your income to below zero?  That will disqualify you for the earned income credit and a few other things.

 

Make sure the "use itemized deductions even if standard deduction is higher" box is unchecked.

[5of5]

 I did just enter in an amount for charitable deductions that wasn't there before, and it did make my refund go up but then when I then went and removed the mortgage interest deduction, the refund went back down.  So one category made it go up, and one made it go down.  Very weird. 

 

I'm not following this.  If you put in a deduction that wasn't there before, I would expect your refund to rise.  And if you remove a deduction, I'd expect your refund to fall.  How is this weird?

[LucyStoner]

Since you have several children, your standard deduction is pretty high. Is it possible that your refund is first calculated with the standard deduction, and once you switch to putting in your itemized deductions, those aren't as high as your standard deduction?

The standard deduction is based on filing status and not affected by number of children. The number of children however does impact the personal exemption.

 

Business expenses on a schedule A can be taken while itemizing or using the standard deduction.

[milovany]

I have a feeling it might have to do with the EIC.  As I recall, we were borderline eligible last year (within just a few dollars) and it's probably similar this year.  I'll go check that out. 

 

I would think I'd itemize because my itemized deductions are nearly twice the amount of the standardized, but I both checked and unchecked the "use itemized deductions even if standard deduction is higher" box and when I checked it (telling it to use the standardized deduction instead), my refund went UP.  I'll check it for sure if it makes my refund go up even though it doesn't make sense to me. 

[happypamama]

The standard deduction is based on filing status and not affected by number of children. The number of children however does impact the personal exemption.

 

 

Oh, that's right.

 

Okay, then, Milovany, I'm betting it has to do with the EITC.

[SparklyUnicorn]

I would pay more if I itemized.  The standard deduction is higher for us. 

 

Although for business income this is completely separate so I am not sure if that is really what it is for you.  DH makes some income from translations.  The expense I claim is payment for royalties and that is all I bother with.  It has never gone up.  So something else must be going on.

 

That's kinda one thing I dislike about these tax software programs.  When I start to feel confused I print off the actual form and fill in the numbers myself.  That often lets me see what is going on.  I've caught errors in tax software doing it that way. 

 

 

 

 

[SKL]

Another thing to check is whether you entered the whole amount of your house deductions (mortgage interest, property tax).  If you are taking the deduction for business use of home, the amount gets broken up.  You are not eligible to deduct most house deductions if you have a business loss, but you can still deduct all of your house mortgage and interest payment.

 

So, is it possible that you overrode the big number with the smaller amount available thru the home business deduction?  Probably a long shot, but maybe worth a look.

[SKL]

If you have high itemized deductions and deductions reduce your taxes, I would also double check to see if anything is pushing you into Alternative Minimum Tax.  In AMT you are not eligible to claim all of your itemized deductions.

 

Taxes suck!!

[milovany]

Thanks to all!  I'm appreciating the feedback.  SKL, no I don't dedicate business use of my home.  I transcribe at a desk in my bedroom so it's a dual use room.  Also, I looked at the summary and the AMT wasn't mentioned at all, so I don't think that was invoked. 

 

Sparkly, thanks for that information! (to double check the tax program)

 

5of5, sorry if that was confusing.  It really doesn't matter so if it's okay, I'm not going to try and figure out what I meant.  :)

[Lanny]

If you think there is any possibility of an error in the TaxACT software, please contact their support!  I am a TaxACT user and as I recall, their support people are based in the USA.

 

Also, to eliminate the possibility that what you are running into is due to an error in the TaxACT software, I suggest that you open a TurboTax account and that you plug the same numbers into TurboTax.. If both companies come up with the same bottom line, you will then know it is not an error in the software.

 

If you are very close, between Itemizing Deductions and taking the Standard Deduction, I personally would go with the Standard Deduction. Itemizing increases the possibility of an audit by I.R.S.

[LucyStoner]

If you are around the top end of the EITC, the AMT won't be a factor for you.

[milovany]

{Shame bump to update}

[Luckymama]

I shouldn't laugh but... :lol:

 

I'm glad you figured out the problem!

[LucyStoner]

Yeah, leave those business expenses on there, lol.

 

I've BTDT with some stupid misreads.

[ILiveInFlipFlops]

{Shame bump to update}

 

:lol: Taxes are just truly awful, aren't they? Every year I do ours, and it's like I've never seen the whole thing before. And they're not even all that complicated!

 

I'm glad you figured out what the problem was. Now you can cheer that you're nearly done!

[Angie in VA]

"Shame bump"  :lol:

 

I'm glad you got it figured out!