I'm seeing it more and more this year. I've finished the return, and I'm going over the year by year comparison with the client. I see the look, and I know the question that's coming. “Why didn't I get as much as I got last year?” Refunds are down... Worse, in some cases the question I hear is “What do you mean we owe???” For my returning clients, I warned them last year that this was coming and when warranted helped them make changes to their W-4 exemptions to help lessen the blow. But for new clients, it can be a shock. Washington changed the tax law, and repealed some benefits that were helping taxpayers. Here are two that got the ax.
Schedule M – Making Work Pay Credit
This credit provided some taxpayers with earned income a credit of $400 for a single filing taxpayer and up to $800 for taxpayers who file as Married Filing Jointly. That's a potential loss of $800 in your refund for a married couple.
Find out what's happening in Holly Springs-Hickory Flatwith free, real-time updates from Patch.
Schedule L – Enhanced Standard Deduction
For years it was known that you couldn't deduct your real estate taxes unless you itemized. “Schedule L”, allowed you to add your real estate taxes to your standard deduction so you would derive benefit by having an increased or enhanced standard deduction. For a taxpayer with $2,500 in real estate tax who is in the 25% tax bracket this meant a tax savings of $625. You can add this to the $800 lost in the previous paragraph for married taxpayers who don't itemize.
Find out what's happening in Holly Springs-Hickory Flatwith free, real-time updates from Patch.
Finally, the thing that is most affecting the size of refunds is the taxpayer's personal situation. There are many taxpayers who are in distress – and they have had to take money from savings such as their 401(k)s or IRAs. This is money that was saved pre-tax, so when money is taken out it is a taxable event. Adding to the problem, is the 10% penalty that is imposed unless the money was taken out for one of several narrow exceptions. Other items that may affect the taxpayer is having a child drop off as a credit or deduction. Work with your tax professional to make sure your refund is what you would like it to be next year.
John Kendrix is a senior tax advisor with H&R Block in Canton, GA. You can reach him at 770-479-2159.