WTOP Interview: 5 Unwelcome Tax Surprises That Might Affect You
Sandy Kozel: Well, with that deadline coming up, you might be working on your taxes this weekend. To talk about some things that might trip you up this year. We’re joined in studio by Dawn Doebler, Senior Wealth Advisor with The Colony Group. Welcome Dawn!
Dawn Doebler: Thank you!
Sandy: Well, due to Tax Cuts and Jobs Act, many people have had some unpleasant surprises when they work on their returns. Specifically, they’re finding they owe Uncle Sam instead of getting a refund. Now you say there are several reasons why the tax bills are higher this year?
Dawn: That’s right. This is the first year that the new tax laws kicked in, so people are having some unwelcome surprises. One of them is, that they’re being told that they’d been under-withheld. One of the challenges is that it took some time to roll out the new law and the withholdings tables were actually incorrect. So a lot of people didn’t have enough being withheld from their paychecks. That does just mean that they give the government some more when they have to pay their taxes, which isn’t necessarily bad, but they do tend to owe more if they’re under-withheld.
Sandy: Okay. It seems like some people just aren’t seeing a change in withholding, but they‚Äôre ending up having to pay more taxes anyhow.
Dawn: Right. Another reason that people are paying more taxes is something that we call bracket creep. And I actually noticed this because I’m a single taxpayer and even though the tax rates did reduce for the highest taxpayers, they declined from 39.6 to 37%. I noticed that actually single taxpayers may actually be in a higher tax bracket; for someone who made about $1,575 in 2017, they were in a 28% marginal tax bracket and now they’re actually in a 32% bracket. Not necessarily the case for married taxpayers. So in this case, it was actually better to be married for this tax year.
Sandy: Well, talk about some of the deductions that you can no longer count on.
Dawn: Well, there’s been a lot of press about something called the SALT deduction. SALT stands for ‚ÄúState and Local Income Taxes‚Äù that are now capped at $10,000. So, whereas people used to be able to deduct the entire amount, they‚Äôre now capped. That means people who have high property taxes, which certainly applies in the Washington DC area, are actually not able to take as high a deduction. So their income may end up higher this year.
Sandy: And also, your fees or an advisor’s fees can no longer be deducted?
Dawn: That’s right. You used to be able to deduct investment advisor fees and also tax preparation fees. That deduction was taken away, as well as unreimbursed work expenses and job search expenses. So people are getting some surprises this year. The good news is there’s lots of time left in the 2019 tax year, so take what you’re learning now for 2018 and try to reposition for 2019 so you don’t have surprises next year.
Sandy: Okay, Dawn, thanks for the advice. Dawn Doebler, Senior Wealth Advisor with The Colony Group.