New Tax Law Impact

[Frances]

3 minutes ago, EmseB said:

Our tax program tells us exactly how much we paid in taxes for the year, so withholding vs refund vs owing doesn't really enter into it. We try to keep our refund as low as possible in any case and would rather owe.

I think our withholding system is actually pretty dumb and the government should send everyone a tax bill or check at the end of the year because confiscating money ahead of time seems like a really good way to obfuscate what people are actually paying in taxes and it makes them feel good about overpaying in taxes all year long if they get a refund. I mean, there are people I know who would actually prefer to overpay as some sort of weird non-interest-earning savings plan.

There are several problems with only paying once per year. First, many people will not set aside the money to actually pay when the bill is due. So much more money will be spent trying to collect the money, and not all of it will eventually be collected. Second, the government has bills to pay year round, so needs continual funding, not just once a year funding.

There is definitely misunderstanding, psychology, and financial planning (forced savings that can only be accessed once per year) behind many people preferring refunds. Also, some people don’t want to risk interest or penalties.

[Frances]

7 minutes ago, LarlaB said:

We are getting a $5K refund and 100% shocked.   Last year, we had 35% lower income and only got $1K back (and that was heavy depreciation).  THis year, 2018, our businesses grew and we fully expected to be paying a hefty chunk (we are not paying quarterly).

We are about as far from simple & standard taxation as you can get- self employed (4 small businesses) and our businesses grew roughly 35% last year.  

Our accountant is a tax Lawyer/CPA combo who specializes in small business.  We are astounded. 

If any of your businesses are pass through entities, the new law was very favorable to most of them. Also, your children are the right ages to fully benefit from the increased child tax credits.

[LarlaB]

1 minute ago, Frances said:

If any of your businesses are pass through entities, the new law was very favorable to most of them. Also, your children are the right ages to fully benefit from the increased child tax credits.

 

Agreed!  It is actually ideal for us.  Still, I hadn't done enough preparatory research to feel prepared. 🙂 

[EmseB]

24 minutes ago, Frances said:

There are several problems with only paying once per year. First, many people will not set aside the money to actually pay when the bill is due. So much more money will be spent trying to collect the money, and not all of it will eventually be collected. Second, the government has bills to pay year round, so needs continual funding, not just once a year funding.

Well, then send a bill every month like every other entity that has to operate year round does. The fact that this is some outrageous idea because it's the government is silly.  They are strangely allowed to keep money and only refund me once a year if I overpay them. Yet it would be a problem for them to budget  if they only collect once a year? Or quarterly? It is actually pretty amazing to me that people will complain about not getting as much of a refund or similar but see no problem with the government having first dibs on their paycheck every two weeks.

[Frances]

On 2/13/2019 at 4:54 PM, EmseB said:

Well, then send a bill every month like every other entity that has to operate year round does. The fact that this is some outrageous idea because it's the government is silly.  They are strangely allowed to keep money and only refund me once a year if I overpay them. Yet it would be a problem for them to budget  if they only collect once a year? Or quarterly? It is actually pretty amazing to me that people will complain about not getting as much of a refund or similar but see no problem with the government having first dibs on their paycheck every two weeks.

They could send bills every month, although they don’t know your actual tax liability until you file your annual return. It’s not like electricity or gas and based on your monthly usage. Nor is it something like cable or internet or property taxes that has a set monthly or yearly charge. And it would cost far, far more for them to get the money and more of it would never be received. The IRS has both calculators and worksheets if you want to make sure you are not being overwithheld. Personally, I always error on the side of owing. 

Edited March 3, 2019 by Frances

[EmseB]

1 hour ago, Frances said:

They could send bills every month, although they don’t know your actual tax liability until you file your annual return. It’s not like electricity or gas and based on your monthly usage. Nor is it something like cable or internet or property taxes that has a set monthly or yearly charge. And it would cost far, far more for them to get the money and more of it would never be received. The IRS has both calculators and worksheets if you want to make sure you are not being overwithheld. Personally, I always error on the side of owing. My son always calculates his to the penny.

Are you saying your son gets to an even $0 owed/returned? That is impressive. I  think our current system is nuts. The government asks me to estimate what I owe under their horribly complex tax code and count on me getting it wrong because it's too hard for most to know their exact tax bill each year. No one can get it right! There's almost no possible way for the government to know throughout the year exactly how much you will be taxed, but the IRS has forms and calculators so you can figure it out. But mostly you owe them or they owe you. BUT if you do your return wrong or set your withholdings too low, you get penalized. You can get fined and ultimately go to jail for being wrong on your taxes. If the government makes a mistake, ah well, that's just how it goes, it's too hard for them to do it any other way. :shrug:

Is it hard to track down people who don't pay? Sure. But it's hard now. Are you saying people would stop paying taxes if they got a true tax bill from the government every year? If so, I would support wage garnishment for those who fail to pay their taxes. Sure. But right now they're garnishing everyone in a way that confuses a whole lot of people about what they're truly being taxed (or not, as the case may be). If those calculators are out there and people can do this to the penny, why not have the IRS do that and send a bill instead of relying on a bunch of lay people to figure it out on their own?

[ChocolateReignRemix]

6 minutes ago, EmseB said:

Are you saying your son gets to an even $0 owed/returned? That is impressive. I  think our current system is nuts. The government asks me to estimate what I owe under their horribly complex tax code and count on me getting it wrong because it's too hard for most to know their exact tax bill each year. No one can get it right! There's almost no possible way for the government to know throughout the year exactly how much you will be taxed, but the IRS has forms and calculators so you can figure it out. But mostly you owe them or they owe you. BUT if you do your return wrong or set your withholdings too low, you get penalized. You can get fined and ultimately go to jail for being wrong on your taxes. If the government makes a mistake, ah well, that's just how it goes, it's too hard for them to do it any other way. :shrug:

Is it hard to track down people who don't pay? Sure. But it's hard now. Are you saying people would stop paying taxes if they got a true tax bill from the government every year? If so, I would support wage garnishment for those who fail to pay their taxes. Sure. But right now they're garnishing everyone in a way that confuses a whole lot of people about what they're truly being taxed (or not, as the case may be). If those calculators are out there and people can do this to the penny, why not have the IRS do that and send a bill instead of relying on a bunch of lay people to figure it out on their own?

You won't go to jail for simply being wrong on your taxes.

The tax code is really not that complicated for most personal income tax calculations.  We usually have ours set up to where we are +/- $400-500 each year.

To our second bolded, we operate as a pay as you go system so that the government has an income stream throughout the year, and also because most people would rather not have to hold thousands in cash to pay a lump sum bill every year.

[Bootsie]

7 minutes ago, ChocolateReignRemix said:

The tax code is really not that complicated for most personal income tax calculations.  We usually have ours set up to where we are +/- $400-500 each year.

I think our tax code is ridiculously complicated.  When I talk to people in other countries, they cannot believe how many hours people in the US spend working on their taxes or how much they pay to have someone figure them out.

It doesn't take much to complicate your taxes; you do not have to have complicated real estate holding companies to be in a situation where the forms are complicated to complete.  My mom is a single widow with no earned income, no dependents, and no home/property taxes.  Doing her taxes drives me crazy.  Because she has some retirement income from my dad's state job (rather than social security) and a few miscellaneous sorts of income she can't file the EZ form.  Once a majority of your income is coming from selling financial assets, getting your withholding correct is tricky (especially when the tax rates keep changing). 

And who would have ever dreamed that having to pay quarterly estimated taxes does NOT mean that you pay once every 3 months, at even intervals??? 

 

[Frances]

On 2/13/2019 at 7:52 PM, EmseB said:

Are you saying your son gets to an even $0 owed/returned? That is impressive. I  think our current system is nuts. The government asks me to estimate what I owe under their horribly complex tax code and count on me getting it wrong because it's too hard for most to know their exact tax bill each year. No one can get it right! There's almost no possible way for the government to know throughout the year exactly how much you will be taxed, but the IRS has forms and calculators so you can figure it out. But mostly you owe them or they owe you. BUT if you do your return wrong or set your withholdings too low, you get penalized. You can get fined and ultimately go to jail for being wrong on your taxes. If the government makes a mistake, ah well, that's just how it goes, it's too hard for them to do it any other way. :shrug:

Is it hard to track down people who don't pay? Sure. But it's hard now. Are you saying people would stop paying taxes if they got a true tax bill from the government every year? If so, I would support wage garnishment for those who fail to pay their taxes. Sure. But right now they're garnishing everyone in a way that confuses a whole lot of people about what they're truly being taxed (or not, as the case may be). If those calculators are out there and people can do this to the penny, why not have the IRS do that and send a bill instead of relying on a bunch of lay people to figure it out on their own?

The IRS is not the one making the complicated tax laws, they just have to enforce them. It’s our legislators and all of the lobbyists they listen to that make everything so complicated. 

I actually don’t think they are counting on people to get it wrong. They are providing tools to help people get it right, but most people don’t use them. Generally, I’ve found the calculators and worksheets to be quite accurate. It would be very difficult for the IRS to do the calculations in advance because they are based on what happens to individuals during the year. It gets especially complicated with multiple earners in a family, businesses, itemized deductions, etc. Hence the need to file an annual tax return to figure out the precise tax liability. I don’t think most people want to have to notify the IRS everytime something changes that might affect their tax bill.

I don’t think very many people, if any, are going to jail for making an innocent mistake on taxes. Most cases that are prosecuted are outright fraud. 

 

Edited March 3, 2019 by Frances

[swimmermom3]

7 hours ago, Frances said:

They could send bills every month, although they don’t know your actual tax liability until you file your annual return. It’s not like electricity or gas and based on your monthly usage. Nor is it something like cable or internet or property taxes that has a set monthly or yearly charge. And it would cost far, far more for them to get the money and more of it would never be received. The IRS has both calculators and worksheets if you want to make sure you are not being overwithheld. Personally, I always error on the side of owing. My son always calculates his to the penny.

 

For 30 years my dh has calculated it so that we owe very little or get very little back. No surprises good or bad. I can live with that.

[Pawz4me]

6 hours ago, Bootsie said:

My mom is a single widow with no earned income, no dependents, and no home/property taxes.  Doing her taxes drives me crazy.  Because she has some retirement income from my dad's state job (rather than social security) and a few miscellaneous sorts of income she can't file the EZ form.  Once a majority of your income is coming from selling financial assets, getting your withholding correct is tricky (especially when the tax rates keep changing).

IME the bolded is very true. Working a salaried job (or I suppose an hourly job with regular hours) -- that's relatively easy to get your tax liability close to zero, and certainly easy to get it within a few hundred dollars.

[EMS83]

Really great (sorry!).  But ours was straight forward, we never itemized, and they withheld way too much in 2018; I'm having it adjusted.

[solascriptura]

Because of the rumblings on this site about the new tax laws, I decided to go early to my CPA.  He said that there were a lot of angry clients so far.  lol. His advice was to change our withholdings to "Married plus 2" since we have 4 kids still at home.  

[solascriptura]

15 hours ago, EmseB said:

Our tax program tells us exactly how much we paid in taxes for the year, so withholding vs refund vs owing doesn't really enter into it. We try to keep our refund as low as possible in any case and would rather owe.

I think our withholding system is actually pretty dumb and the government should send everyone a tax bill or check at the end of the year because confiscating money ahead of time seems like a really good way to obfuscate what people are actually paying in taxes and it makes them feel good about overpaying in taxes all year long if they get a refund. I mean, there are people I know who would actually prefer to overpay as some sort of weird non-interest-earning savings plan.

Realistically this would never work.  Most people cannot or will not save thousands of dollars each year in a bank account for the purpose of paying federal taxes at the end of each year.  Way too many people live paycheck to paycheck for this to ever work.

[Bootsie]

3 minutes ago, solascriptura said:

Realistically this would never work.  Most people cannot or will not save thousands of dollars each year in a bank account for the purpose of paying federal taxes at the end of each year.  Way too many people live paycheck to paycheck for this to ever work.

But, this is the way property tax is collected, at least in my state.  

Part of the problem is that your tax bill can be very different if you get married on December 31 or January 1, or i the baby is born December 31 or January 1, or your employer changes whether paychecks are made on the last day of the month or the first day of the month, and a number of other things that people may not be aware of when they start having withholdings determined at the beginning of the year.  We live a fairly boring life, but it is amazing how many years DH and I have had an event that occurs duing the year that has made our tax bill be significantly different by the end of the year than we thought it would be at the beginning of the year.

[Frances]

17 minutes ago, Bootsie said:

But, this is the way property tax is collected, at least in my state.  

Part of the problem is that your tax bill can be very different if you get married on December 31 or January 1, or i the baby is born December 31 or January 1, or your employer changes whether paychecks are made on the last day of the month or the first day of the month, and a number of other things that people may not be aware of when they start having withholdings determined at the beginning of the year.  We live a fairly boring life, but it is amazing how many years DH and I have had an event that occurs duing the year that has made our tax bill be significantly different by the end of the year than we thought it would be at the beginning of the year.

Many people with mortgages pay property taxes into an escrow account each month though. And income taxes can be quite a bit higher, at least for some people. Ours are at least 10x more than our property taxes. And that’s just federal income taxes.

Your point about changing situations is very true. That’s one of the main reasons why it would be quite difficult for the IRS to figure your annual bill exactly and then bill you monthly. There would likely still be an annual trueing up each year with people owing or paying, just as occurs now. The IRS calculator does take into account withholding to date, so it can be useful when situations change during the year, if you want to adjust withholding.

[Frances]

3 hours ago, happysmileylady said:

We do specify an exact amount.  We claim a crazy high number of allowances (20) so that the calculators have withholdings at zero, then on the line where it asks about additional withholding, we specify an exact amount.  

Well, actually, that amount is still just zero since we don't have to pay anything in with the refundable credits.  But in years past, we would put exactly what we wanted.  

Yes, this will work!  I just wish it was more obvious so everyone knew about it. Or there was a line where you could ask for a specific amount rather than relying on allowances.

[EmseB]

52 minutes ago, solascriptura said:

Realistically this would never work.  Most people cannot or will not save thousands of dollars each year in a bank account for the purpose of paying federal taxes at the end of each year.  Way too many people live paycheck to paycheck for this to ever work.

So what do those same people do if they owe at the end of the year anyway? Do most people that have a bill at the end of the year not pay it because they haven't saved for it or have no savings?

[Arcadia]

5 minutes ago, EmseB said:

So what do those same people do if they owe at the end of the year anyway? Do most people that have a bill at the end of the year not pay it because they haven't saved for it or have no savings?

 

IRS has installment plans for those who owe. https://www.irs.gov/payments/payment-plans-installment-agreements

Due to my husband’s pay package having stock options and being hard to estimate for tax, we put aside a few thousand in savings as buffer for owing the IRS. We know people who have paid by installments to IRS.

[EmseB]

11 hours ago, Frances said:

The IRS is not the one making the complicated tax laws, they just have to enforce them. It’s our legislators and all of the lobbyists they listen to that make everything so complicated. And yes, my son is able to calculate his exactly because he is single with no dependents. He just does it manually himself because he has a basic understanding of taxes. 

I actually don’t think they are counting on people to get it wrong. They are providing tools to help people get it right, but most people don’t use them. I work with taxes every day, and most people I work with do not use them. So it’s not surprising the average person doesn’t use them. Generally, I’ve found the calculators and worksheets to be quite accurate. It would be very difficult for the IRS to do the calculations in advance because they are based on what happens to individuals during the year. It gets especially complicated with multiple earners in a family, businesses, itemized deductions, etc. Hence the need to file an annual tax return to figure out the precise tax liability. I don’t think most people want to have to notify the IRS everytime something changes that might affect their tax bill.

I don’t think very many people, if any, are going to jail for making an innocent mistake on taxes. Most cases that are prosecuted are outright fraud. Funding for the IRS is quite low given the complexity of the work they perform and their computer systems are very outdated. The chances of even getting audited are very, very low, especially for regular wage earners.

The one change I would like to see is people being able to, if they desire, simply say the exact amount they want withheld from each paycheck, rather than being forced to claim a certain number of allowances. I do think the current system is not transparent enough and adds to the mystery. But the dilemma is that it needs to work for everyone, from the simplest cases to the most complicated. The IRS actually proposed a new withholding form last year that did away with allowances, but it was shelved when early drafts were highly criticized by tax professionals.

But isn't that the point of filing a return? To resolve what you owe or get back because withholdings are usually not correct down to the penny? Because usually the estimates are not  accurate, especially when you get into refundable credits and stuff? I mean, that's what you've said in the second thing I've bolded. The whole point of going through this at the end of the year is because what most people have paid in is not correct in one direction or another.

No, most people aren't going to jail for making an innocent mistake on taxes. That was not my point. The point is that if I make an error I owe all the penalties and interest for that error. If the government makes an error, meh, oh well. And when it comes down to it, tax laws are enforced via the same mechanism as any other law. 

But if we're all saying that taxes are really not that complicated or difficult to figure out, I have to disagree. When you look at threads like this (and they aren't just here), at people having to hire a CPA to do their taxes, when you look at elected representatives speaking to lower refunds instead of overall tax liability, and when most people have more than just single with one salaried income stream going on, I think it is complicated. I don't think it's that transparent for most people. I could be wrong.

And the kicker is, when I look at my overall tax liabilty, I don't think it's unreasonable. I really don't. If the government said, "This is what you need to pay in order to contribute to a functioning society; here is your bill," I would not be upset. It seems reasonable. But they don't. We spend at least a few hours sitting and figuring out and double checking the numbers so that we don't make a mistake on what we owe for this income or that income, why are we getting this amount back? That doesn't seem right. Does this count as this type of income or that type? It could fit in either column. Did you get your 1099 from this company? Does XYZ count as a business expense or did it change? Did we get our tax statement from this charity, does it match our bank records., etc., etc. I don't feel like we're alone in this, just judging by my own small social media feeds and the threads here. 

[EmseB]

13 minutes ago, Arcadia said:

 

IRS has installment plans for those who owe. https://www.irs.gov/payments/payment-plans-installment-agreements

Due to my husband’s pay package having stock options and being hard to estimate for tax, we put aside a few thousand in savings as buffer for owing the IRS. We know people who have paid by installments to IRS.

Right, but the contention was we could never have people pay their taxes at the end of the year because most people couldn't afford to do that because they're living paycheck to paycheck. So what I'm wondering is what happens to those people if they end up owing at the end of the year now? They are just not paying?

The PP was saying that most people can't do what you and your husband do (have a savings buffer for owing taxes) and if most people got a bill at the end of the year, they wouldn't be able to pay it. IOW, most can only afford to pay their taxes because it's taken out of the paycheck automatically every month.

[shawthorne44]

16 hours ago, EmseB said:

...

I think our withholding system is actually pretty dumb and the government should send everyone a tax bill or check at the end of the year because confiscating money ahead of time seems like a really good way to obfuscate what people are actually paying in taxes and it makes them feel good about overpaying in taxes all year long if they get a refund. I mean, there are people I know who would actually prefer to overpay as some sort of weird non-interest-earning savings plan.

 

That obfuscating is how the gov likes it.   

[shawthorne44]

2 minutes ago, EmseB said:

Right, but the contention was we could never have people pay their taxes at the end of the year because most people couldn't afford to do that because they're living paycheck to paycheck. So what I'm wondering is what happens to those people if they end up owing at the end of the year now? They are just not paying?

The PP was saying that most people can't do what you and your husband do (have a savings buffer for owing taxes) and if most people got a bill at the end of the year, they wouldn't be able to pay it. IOW, most can only afford to pay their taxes because it's taken out of the paycheck automatically every month.

What you are saying is that people don't have self-control because they will spend however much money they get.  Not really that they can't afford it, because the amount spent would be the same either way.  

I see that with property taxes.   Apparently, some mortgages give people the option to pay that themselves. so they have a choice of paying it monthly with their mortgage or once-a-year.  

[Bootsie]

3 hours ago, Frances said:

Many people with mortgages pay property taxes into an escrow account each month though. And income taxes can be quite a bit higher, at least for some people. Ours are at least 10x more than our property taxes. And that’s just federal income taxes.

Your point about changing situations is very true. That’s one of the main reasons why it would be quite difficult for the IRS to figure your annual bill exactly and then bill you monthly. There would likely still be an annual trueing up each year with people owing or paying, just as occurs now. The IRS calculator does take into account withholding to date, so it can be useful when situations change during the year, if you want to adjust withholding.

Changing withholding works well for people who receive most of their income from a paying job.  If you find that at the end of the year you need to have your entire paycheck withheld the last couple of months to pay taxes, you can do that and have it counted as if that amount was paid, on average, throughout the year.  However, if you are having pay "quarterly" estimated taxes you cannot make a big change on the fourth payment and it be counted as if it was being done over the year.

There are other ways that this could be handled.  In Year 2 you pay the average taxes you would have owed in Year 1; the IRS and you know what that amount is.  Or, charge people interest but not a penalty for under withholding.  Or, only start garnishing wages for people who owe tax bills from previous years that they haven't paid rather than making everyone do this, even if they can budget and pay their taxes when the bill comes due.  

A much better solution, however, IMO would be a simpler tax structure that makes how much you are going to owe in taxes be much more straightforward.

For some people property taxes are much larger than their income taxes.

[Crimson Wife]

19 hours ago, EmseB said:

 I think our withholding system is actually pretty dumb and the government should send everyone a tax bill or check at the end of the year because confiscating money ahead of time seems like a really good way to obfuscate what people are actually paying in taxes and it makes them feel good about overpaying in taxes all year long if they get a refund. I mean, there are people I know who would actually prefer to overpay as some sort of weird non-interest-earning savings plan.

Tax cheating would be significantly more of a problem if the government didn't require withholding. There already is a LOT of cheating going on with tips and cash payments but at least the majority of workers do pay their legally required taxes because of withholding.

[Frances]

8 hours ago, EmseB said:

Right, but the contention was we could never have people pay their taxes at the end of the year because most people couldn't afford to do that because they're living paycheck to paycheck. So what I'm wondering is what happens to those people if they end up owing at the end of the year now? They are just not paying?

The PP was saying that most people can't do what you and your husband do (have a savings buffer for owing taxes) and if most people got a bill at the end of the year, they wouldn't be able to pay it. IOW, most can only afford to pay their taxes because it's taken out of the paycheck automatically every month.

Some do and some don’t. Even with withholding from paychecks, there are still considerable resources at the both the federal and state level devoted to collecting unpaid tax bills. And many of them are related to actual returns as filed, not audits. People know they owe, but they can’t pay on time.

[Frances]

6 hours ago, Bootsie said:

Changing withholding works well for people who receive most of their income from a paying job.  If you find that at the end of the year you need to have your entire paycheck withheld the last couple of months to pay taxes, you can do that and have it counted as if that amount was paid, on average, throughout the year.  However, if you are having pay "quarterly" estimated taxes you cannot make a big change on the fourth payment and it be counted as if it was being done over the year.

There are other ways that this could be handled.  In Year 2 you pay the average taxes you would have owed in Year 1; the IRS and you know what that amount is.  Or, charge people interest but not a penalty for under withholding.  Or, only start garnishing wages for people who owe tax bills from previous years that they haven't paid rather than making everyone do this, even if they can budget and pay their taxes when the bill comes due.  

A much better solution, however, IMO would be a simpler tax structure that makes how much you are going to owe in taxes be much more straightforward.

For some people property taxes are much larger than their income taxes.

A much simpler tax structure is the obvious, but unlikely to ever be realized, solution. 

[Frances]

On 2/14/2019 at 8:45 AM, shawthorne44 said:

 

That obfuscating is how the gov likes it.   

Nm

Edited March 3, 2019 by Frances

[ktgrok]

9 hours ago, Arcadia said:

 

IRS has installment plans for those who owe. https://www.irs.gov/payments/payment-plans-installment-agreements

Due to my husband’s pay package having stock options and being hard to estimate for tax, we put aside a few thousand in savings as buffer for owing the IRS. We know people who have paid by installments to IRS.

Yes, we ended up owing quite a bit  the year before last due to his second job messing with the withholdings, and had to do an installment plan. We paid monthly, and then what was left got paid out of the refund the following year. But it costs more to do an installment plan. (a literal poor tax I guess). 

9 hours ago, EmseB said:

Right, but the contention was we could never have people pay their taxes at the end of the year because most people couldn't afford to do that because they're living paycheck to paycheck. So what I'm wondering is what happens to those people if they end up owing at the end of the year now? They are just not paying?

The PP was saying that most people can't do what you and your husband do (have a savings buffer for owing taxes) and if most people got a bill at the end of the year, they wouldn't be able to pay it. IOW, most can only afford to pay their taxes because it's taken out of the paycheck automatically every month.

The whole amount is a lot different than being a bit off and owing. 

[homemommy83]

Ours didn't change at all.  We are a large family in a lower income bracket and still recieved the exact same credits as before- EIC, but did not receive anything from the expanded CTC as it is only for those that have had to pay in taxes...not that that is bad..just saying😉.  So in the future based on this new system, with soon to be 7 kiddos if our income grows we will go from receiving EIC to the CTC-this is simplified of course, but pretty accurate. 

Brenda

[historically accurate]

10 hours ago, homemommy83 said:

Ours didn't change at all.  We are a large family in a lower income bracket and still recieved the exact same credits as before- EIC, but did not receive anything from the expanded CTC as it is only for those that have had to pay in taxes...not that that is bad..just saying😉.  So in the future based on this new system, with soon to be 7 kiddos if our income grows we will go from receiving EIC to the CTC-this is simplified of course, but pretty accurate. 

Brenda

What do you mean you didn't get the expanded CTC? We get EIC and the $2000 per kid CTC. 

[Lady Florida.]

On 1/30/2019 at 2:38 PM, G5052 said:

 

 

I'm surprised that they already distributed some of the proceeds because most estates wait until it's completely closed out. There are cases where they don't do that, but usually they wait just to make sure the taxes are covered. The estate should pay the taxes on itself, not you. Unless your state laws require, and inheritance is not taxable income.

I know this quote is old but the thread is still going. 🙂 Anyway, what we received was 1/4 of the life insurance payout and 1/4 of the sale of the house. We also got two small ($40 and $45) checks from forgotten bank accounts BIL closed out. What we haven't received is money from FIL's main account or his stocks. Those I guess are the real estate monies though I used the term estate for the other money we received. We know there won't be an inheritance tax because the amount doesn't come close to the taxable amount. We're not sure if we have to pay taxes on the money from selling the house or (for 2019) any money we'll get from stocks, or if those count as inheritance monies. We have an appointment to have our taxes done next week.

As for taxes in general, we usually get a very small refund because dh is pretty good about calculating. We don't itemize and though he's paid hourly his hours are pretty predictable with overtime coming only when there's a launch. 

[Bootsie]

4 minutes ago, Lady Florida. said:

I know this quote is old but the thread is still going. 🙂 Anyway, what we received was 1/4 of the life insurance payout and 1/4 of the sale of the house. We also got two small ($40 and $45) checks from forgotten bank accounts BIL closed out. What we haven't received is money from FIL's main account or his stocks. Those I guess are the real estate monies though I used the term estate for the other money we received. We know there won't be an inheritance tax because the amount doesn't come close to the taxable amount. We're not sure if we have to pay taxes on the money from selling the house or (for 2019) any money we'll get from stocks, or if those count as inheritance monies. We have an appointment to have our taxes done next week.

As for taxes in general, we usually get a very small refund because dh is pretty good about calculating. We don't itemize and though he's paid hourly his hours are pretty predictable with overtime coming only when there's a launch. 

Generally speaking, any increase in the value of the asset during the deceased's life  will not be income for you.  Any increase in the value of the asset before the individual's death is part of the estate.  For example, if A purchases a share of stock for $100 and the share of stock is worth $300 at the time of A's death, Person B inherits a $300 stock.  Then if B sells the stock for $350, the $50 increase in value is considered Person B's capital gain and is taxed accordingly. 

[TechWife]

1 hour ago, Lady Florida. said:

I know this quote is old but the thread is still going. 🙂 Anyway, what we received was 1/4 of the life insurance payout and 1/4 of the sale of the house. We also got two small ($40 and $45) checks from forgotten bank accounts BIL closed out. What we haven't received is money from FIL's main account or his stocks. Those I guess are the real estate monies though I used the term estate for the other money we received. We know there won't be an inheritance tax because the amount doesn't come close to the taxable amount. We're not sure if we have to pay taxes on the money from selling the house or (for 2019) any money we'll get from stocks, or if those count as inheritance monies. We have an appointment to have our taxes done next week.

As for taxes in general, we usually get a very small refund because dh is pretty good about calculating. We don't itemize and though he's paid hourly his hours are pretty predictable with overtime coming only when there's a launch. 

 

Estate taxes are widely misunderstood. They only kick in for the very rich - those who have estates valued at $5 million or more (check that amount, it may be different now than when I settled my mom's affairs). The estate is the one who pays the taxes, not the heirs. Any tax should be paid before funds are distributed.

You do have to pay taxes on income generated from an inheritance - for example, if you inherit stocks, you have to pay taxes on the difference between the price when you inherited them and when you sold them (assuming the stock price went up). If you inherited the house (or a part of it), you will have to pay taxes on the difference between the value of the house at the time of the inheritance and the time you sell it (assuming the price went up). If the estate is selling the house, the estate is the one that pays any taxes, but again, only if the total value of the estate is $5 million or more. If the estate sells the stocks, then the estate pays the those taxes if the value of the estate is $5 million or more. If you were a beneficiary of the life insurance policy, that is not taxable unless the insurance company pays interest, then the interest only is taxable income.

My mom's estate was fairly straightforward - the estate owned everything and I as the executor, sold the house and divided the proceeds among the beneficiaries. The deed did not transfer to the beneficiaries. IIRC correctly, her will stipulated that assets were to be liquidated, which is why I sold the house as opposed to transferring the deed to the five heirs. Boy, that would have been a mess, as all five heirs would have had to agree to sell and then to agree on the sale price, sign the closing papers, etc..

Remember to thank your BIL - settling an estate is a lot more work than it seems at the start. I feel as if I should get a merit badge just for dealing with AT&T alone, not to mention all of the other stuff.

 

[TechWife]

On 1/30/2019 at 2:38 PM, G5052 said:

I'm surprised that they already distributed some of the proceeds because most estates wait until it's completely closed out. There are cases where they don't do that, but usually they wait just to make sure the taxes are covered. The estate should pay the taxes on itself, not you. Unless your state laws require, and inheritance is not taxable income.

Many estates make more than one distribution. There is often an initial distribution and a final distribution. I did two for my mom's - one right after the house sold and then another two months later after all of the utility bills had cleared. I remember my parents receiving money from various relative & it was always handled this way as well - an initial distribution and then a final distribution once all of the dust settled. Most estates are not taxable and the executor knows very quickly, upon examining assets at the outset, whether or not this is the case.

[Lady Florida.]

4 hours ago, TechWife said:

 

Estate taxes are widely misunderstood. They only kick in for the very rich - those who have estates valued at $5 million or more (check that amount, it may be different now than when I settled my mom's affairs). The estate is the one who pays the taxes, not the heirs. Any tax should be paid before funds are distributed.

You do have to pay taxes on income generated from an inheritance - for example, if you inherit stocks, you have to pay taxes on the difference between the price when you inherited them and when you sold them (assuming the stock price went up). If you inherited the house (or a part of it), you will have to pay taxes on the difference between the value of the house at the time of the inheritance and the time you sell it (assuming the price went up). If the estate is selling the house, the estate is the one that pays any taxes, but again, only if the total value of the estate is $5 million or more. If the estate sells the stocks, then the estate pays the those taxes if the value of the estate is $5 million or more. If you were a beneficiary of the life insurance policy, that is not taxable unless the insurance company pays interest, then the interest only is taxable income.

My mom's estate was fairly straightforward - the estate owned everything and I as the executor, sold the house and divided the proceeds among the beneficiaries. The deed did not transfer to the beneficiaries. IIRC correctly, her will stipulated that assets were to be liquidated, which is why I sold the house as opposed to transferring the deed to the five heirs. Boy, that would have been a mess, as all five heirs would have had to agree to sell and then to agree on the sale price, sign the closing papers, etc..

Remember to thank your BIL - settling an estate is a lot more work than it seems at the start. I feel as if I should get a merit badge just for dealing with AT&T alone, not to mention all of the other stuff.

 

I knew about the bolded but wasn't sure if the proceeds from the sale of the (paid for) house are taxable or if that counts as part of the estate, in which case we wouldn't owe taxes on it. I don't know anything about the stocks other than that he had a fair amount and BIL sold them off when the time was right.  We trust BIL completely. He was the middle child until youngest sister was born many years later, and he's one of the most detail oriented, fair minded people I've ever known. Not that dh or his other siblings wouldn't be fair but I think FIL knew what he was doing when he chose BIL as his executor. I think he knew no one would question BIL's methods or motives.

Funny thing. After posting this I had an appointment and some errands. I came home and dh said we got another check from BIL. In the "for" space it says final disbursement of estate, so I'm assuming that means the sold stocks as well as the balance of the bank account. 

[homemommy83]

8 hours ago, beckyjo said:

What do you mean you didn't get the expanded CTC? We get EIC and the $2000 per kid CTC. 

Yes...we didn't qualify for the CTC at all because we made just shy of 30,000 and it puts us at not owing taxes...to be honest I feel like the EIC is beyond generous already...Turbotaxcaster had us getting though...which I would have fainted😉...but when we ran numbers through Turbotax, HRblock, and Taxact we didn't qualify because tge kids actually make our taxes owed at 0😉...so we don't get the expanded child tax credit because we have kids😂.  The EiC allows enough to help us let me stay home and home educate the kiddos...and is such a blessing.  

[homemommy83]

2 hours ago, happysmileylady said:

I am not a tax pro, but I think you should have a person actually double check that because even if you can't take the credit, I think you might still qualify for the additional child tax credit, which would be the portion that is refundable, even if your tax liability is zero.  I mean, the software could be right, but honestly, I have found it....for us....to make quite a few mistakes.  At $1400 per kid being the refundable portion, I think it might be worth it for you to have a real life tax pro take a look at it.  

I definitely can loom into having someone else look at it...we did get a much smaller actc.  Since our tax liability is 0 it is based on the old law that folded into the new-if that makes any sense.  So we didn't get the expanded credit which for us was a 6000 dollar difference...as we have a bazillion sweet babies😂.  It was originally part of theblaw, but the last night before the signing of the new bill it excluded the lowest income bracket as a way to save 1 percent on the bill...or it wouldn't pass😉.  But the lowest bracket already gets the EIC and the much smaller ACTC...combined comes out similarbto what the CTC is- if our income bracket with our number of kiddos ended up with both they would actually get shy of half of their entire earned income as a bonus-that they didn't earn...kwim...so the EIC is already generous.  Our close family friends had just a bit more than we did with 7 kiddos and they had a tax preparer do their taxes as they run a small hone business...and were told this as well...their liability is 0 so they got EIC and the old much smaller AcTC, but not the expanded CTC because of last minute change to the bill.

Thank you for your thoughtfulness.

[Crimson Wife]

On 2/15/2019 at 6:21 PM, homemommy83 said:

I definitely can loom into having someone else look at it...we did get a much smaller actc.  Since our tax liability is 0 it is based on the old law that folded into the new-if that makes any sense.  So we didn't get the expanded credit which for us was a 6000 dollar difference...as we have a bazillion sweet babies😂.  It was originally part of theblaw, but the last night before the signing of the new bill it excluded the lowest income bracket as a way to save 1 percent on the bill...or it wouldn't pass😉.  But the lowest bracket already gets the EIC and the much smaller ACTC...combined comes out similarbto what the CTC is- if our income bracket with our number of kiddos ended up with both they would actually get shy of half of their entire earned income as a bonus-that they didn't earn...kwim...so the EIC is already generous.  Our close family friends had just a bit more than we did with 7 kiddos and they had a tax preparer do their taxes as they run a small hone business...and were told this as well...their liability is 0 so they got EIC and the old much smaller AcTC, but not the expanded CTC because of last minute change to the bill.

Thank you for your thoughtfulness.

If you are in the income range for EITC, I believe you should qualify to get free tax assistance. My dad volunteered for the VITA program for years (he didn't this year because he was helping support his sister during her husband's cancer treatment and passing).

[JaLeSherman]

We got about the same amount back as we usually do, but I adjusted our with holdings in February of 2018 when the notice was put out about the surprise that may await most people at the end of the year. We're very low income, so I didn't want to get in trouble for the extra $20 every two weeks we got. I don't trust Politicians, especially rich politicians to look out for me, and I know anything they 'give' back to me, they'll want back, plus more (interest, fees, fines, etc) 

But then this goes back to the point up above, why do we prefer a lump sum back versus breaking even? Well --- we do live paycheck to paycheck for now. While my husband picks up overtime everywhere he can find it -- as well as additional training that he travels for to make his skills worth more, this is how we live. Even owing $300-$500 would easily devastate us. If we had owed this year, along with my power steering pump going out and my husband needing a crown, I don't know what we'd do. And I imagine for many of us low on the totem pole of finances, it's our reality. I hate to think of what some of my peers may be going through if they end up owing .... 

The only thing that's irritating this year is that just a couple days ago, especially with the Government shutting on and off, we got a 'missing' form that we hadn't expected. (Local government claims they credited us $14 that we need to claim as income, but then said in the same form that they never sent us the check and sent it to another city, yet we still owe taxes on it) and the amending form is still not available. I've never been so nervous about the IRS busting down our door. 😂 

[homemommy83]

On 2/13/2019 at 12:34 AM, Frances said:

As long as you’re ok with the new record federal deficit, it’s all good.

Honestly I would be fine with not getting any tax credits-even though it would be harder on us...if they also quit funding the vast majority of special interest groups, excess money to all federal programs outside of military/education/and health insurance for kids.  But the last several presidents haven't had a stable budget-always spending more to keep their personal base happy...

This will destroy this country, just like any home that builds debt to the point of not even affording the interest payments-which as a nation looks like we are headed.

I would love to see ALL unnecessary funding stopped and let people write in on their tax forms where they would like to donate money towards...everyones own political focuses can be funded by the people who truly support the idea...allowing the government to focus on education, securing a strong military, and helping the poor children.  

 

[nixpix5]

We got double what we got back last year with no change in income from last year so it definitely was a pleasant surprise. 

[wendyroo]

From 2017 to 2018...

Our income increased by 6%
Our taxable income increased by 29%
Our total taxes owed decreased by 42%
Our refund increased by 38% (we did not make any changes to withholdings)
Our effective tax rate went from 4.89% to 2.66%

Frankly, the whole thing makes me uncomfortable.  The lower tax bill is nice and all, but we didn't cost society any less last year than the year before.  We drove on the roads and used the libraries and enjoyed the parks more than over.  Our 2017 tax bill felt reasonable and fair.  Having that bill suddenly reduced by 42% feels...unfair?...too good to be true?...like those costs are being passed on to others who are perhaps less able to handle them than we are?  This tax bill come in just a bit higher than what we spent on eating out last year...and we don't eat out that often.  That feels intrinsically wrong to me.

[mommyoffive]

14 hours ago, nixpix5 said:

We got double what we got back last year with no change in income from last year so it definitely was a pleasant surprise. 

 

Wow

[PrincessMommy]

Funny this came up.  My 26 yr old dd called me in tears and having a panic attack this morning.  She owes taxes for the first time ever.  Her income did not go up significantly, but her expenses did as she's no longer sharing an apt with her brother.  As I'm typing,  dh and she are walking through the filing together (via phone) trying to make some progress.   One filing said she owed $350... with her papa it looks like it's a bit less than $200.  It's still quite a blow, as she's living on the edge and is a student.    Last year she got back over $1000.  She was planning to use money she thought she'd get back for next semester.    

Edited February 20, 2019 by PrincessMommy

[EmseB]

13 minutes ago, wendyroo said:

From 2017 to 2018...

Our income increased by 6%
Our taxable income increased by 29%
Our total taxes owed decreased by 42%
Our refund increased by 38% (we did not make any changes to withholdings)
Our effective tax rate went from 4.89% to 2.66%

Frankly, the whole thing makes me uncomfortable.  The lower tax bill is nice and all, but we didn't cost society any less last year than the year before.  We drove on the roads and used the libraries and enjoyed the parks more than over.  Our 2017 tax bill felt reasonable and fair.  Having that bill suddenly reduced by 42% feels...unfair?...too good to be true?...like those costs are being passed on to others who are perhaps less able to handle them than we are?  This tax bill come in just a bit higher than what we spent on eating out last year...and we don't eat out that often.  That feels intrinsically wrong to me.

Well, if it makes you feel any better...those things you mentioned specifically are mostly funded by state and local taxes (so aren't going to be reflected in your federal income tax filling). But if your local sales or property taxes did go down, quite often the local services and amenities have some mechanism for donations, like Friends of the Library or some such.

[Arcadia]

We did benefit even though we still owe Federal tax and first time we don’t need to pay AMT. The child tax credit did help as we qualify again after many years of being above the cutoff.

Effective tax rate when down from 20.1% to 17.7% while taxable income went up by $49k (ETA: due to stock options and stocks being up at time of vesting)

Edited March 6, 2019 by Arcadia

[Happy2BaMom]

We paid more, by a few thousand dollars. The loss of some deductions is what pushed it up. Fortunately that's not that big of deal for us.

In the news today: the U.S. deficit is up 77% over the same period in 2018. The U.S. has managed to add $310 billion in debt so far this fiscal year. 

But I'm sure the U.S. will avoid the fate of every other empire that's massively overspent and underfunded itself. <eye roll>

Edited March 6, 2019 by Happy2BaMom

[mommyoffive]

Hoping to hear from our CPA soon.    I just wanna know.

 

Just heard.  We are getting a lot back.   Much more than normal. 

Edited March 7, 2019 by mommyoffive

[Frances]

7 hours ago, Arctic Mama said:

Question - what do you think would have happened with federal spending and the deficit with another party controlling the White House and Congress?  Do you think the deficit would have gone down, or gone up by a lower rate?  What about money in paychecks and pockets?

 

I am always fascinated by the answer given on this question.  The deficit drives me bonkers, but no one ever seems willing, in any majority, to actually make the spending cuts needed to reduce it. Increasing revenue only works until you run out of other people’s money, too, especially when higher tax rates changes economic behavior for individuals and businesses.  

Hubby still hasn’t done our taxes, but he did watch the withholdings like a hawk. That seems to be what has skunked a few people this year who are used to bigger refunds.  

I don’t think the deficit would be increasing due to tax cuts if the other party was in charge. There are two sides to the deficit, revenue and spending. Had we not decreased revenue (virtually every economist whether right, center, or left said the cuts would not pay for themselves), the deficit would not be as high as it is now. And even though most people did see some tax savings, the majority went to the wealthy and corporations, who then used much of it for stock buy backs. And if cuts are now made, they will likely impact lower and average income Americans more, probably more than erasing any savings from tax cuts. I think some leaders were clear that this was the plan. Cut taxes which leads to lower revenue and increased deficits and therefore justification for cutting SS, Medicare, and Medicaid.

And since we’ve had many years of economic growth and it wasn’t showing sign of waning, it didn’t really seem like the time to “stimulate” the economy with tax cuts. Decreasing the deficit while times are good so that spending can be done or cuts can be made when times are bad seems more prudent. While some reform of corporate taxation was likely needed, it still remains to be seen how all of that will play out, as regulations are still being released due to all of the complexity and the speed with which the bill was passed.

To be fair, if the other party was in charge, they probably would have increased spending and increased taxes on some, while possibly lowering taxes for other. How that would have affected the deficit would depend on the interaction among the factors.

It’s the interest on our debt that kills me. So much wasted money.

Edited to add that both sides seem much more concerned about the deficit when they are not in power. 

 

 

Edited March 7, 2019 by Frances