Get Ready for a Nasty Tax Season Surprise

[sundance435]

I am retired. Please consider I do not want a big bank account from which to dip into and live. This seems to be what non-retired people want. But what I really want is a source of income. All retired people need a flexible source of income, not a 401K or even a Roth IRA. Rental property would be great. Rental land would be great. A loan to a relative for that relative to buy a house would be great. The government really never knows the real or true value of what you have so it is hard for them to seize it or tax it.

Have you ever dealt with an assessor's office? If so, I can't imagine making a comment like that.

Rental dwellings/businesses are a huge pain, unless you're paying someone to manage them (which is usually at least 30% of the rent). Rental land would be better, but the return is far less, unless you can find a solar developer for it (tying it up for at least 25 years, in that case). The government always gets its cut - it usually favors a "bird in the hand", e.g. transfer and property taxes, than being able to squeeze every cent in revenue that it can.

Edited to add: I saw a noticeable difference in take-home after the new tables went into effect. My return was smaller than usual, but the increase in take-home more than made up for it. Not a huge benefit for me overall, but not nothing, either. I've heard from numerous accountants that the only people who were hurt by this are a very small subset with unique tax circumstances (especially self-employed professionals) - some of whom will probably be addressed through a "fix" of the new corporate pass-through rates.

[Averageman]

Edited to add: I saw a noticeable difference in take-home after the new tables went into effect. My return was smaller than usual, but the increase in take-home more than made up for it. Not a huge benefit for me overall, but not nothing, either.

And this is the key.
You might not notice the benefit in your check, but you'll notice the lack of a return, which is backward thinking.
I'm retired, my money is my money and It's for the most part tax free. I got $300.00 back this year, but the year before I was paying nearly 40%, even more if you consider the taxes on fuel, food and licences.
I'm pretty happy.

[THCDDM4]

I’m getting hit by some new tax code. I drive my own vehicle in my sales position. I can no longer deduct my mileage above what is reimbursed by my employer.

It’s a good $4K I’m taking a hit on.

[AKDoug]

I ended up owing $2700 more than normal.

Was your year's total tax bill $2700 more than normal? Or did you just end up paying because of not enough withholding.

[duece71]

It's worse than that. I'm being penalized for not paying enough taxes to withdraw some money from a retirement account to pay some debts. I'm literally having to pay more of my own money to the government to get to my own money in a retirement account. That's like telling the bank you want to withdraw some money from your account and they tell you, "Okay, but we get to keep a big chunk of what you take out as our tip."

Correct me if I am wrong but isn’t withdrawing money from a retirement account considered income? If you are taking money out before a certain age, you could be penalized as well.
I got back a little more than last year. I need to adjust my withholding. I don’t really care for giving the Government an interest free loan.

[sundance435]

I’m getting hit by some new tax code. I drive my own vehicle in my sales position. I can no longer deduct my mileage above what is reimbursed by my employer.

It’s a good $4K I’m taking a hit on.

Unfortunately, a lot of people took a hit on "unreimbursed business expenses". I'm not aware of a way around it, but some creative accountant may.

And this is the key.
You might not notice the benefit in your check, but you'll notice the lack of a return, which is backward thinking.
I'm retired, my money is my money and It's for the most part tax free. I got $300.00 back this year, but the year before I was paying nearly 40%, even more if you consider the taxes on fuel, food and licences.
I'm pretty happy.

Yes, I'm all for not giving the government an interest fee loan. I have no issues with keeping more of my money throughout the year. Like I said, I even came out ahead in the end. Wasn't a huge difference for me, but I'm not unhappy about it, either. I would like to see a noticeable increase in capital spending from corporations, since they got a far better deal (not just through a lower nominal rate).

Correct me if I am wrong but isn’t withdrawing money from a retirement account considered income? If you are taking money out before a certain age, you could be penalized as well.
I got back a little more than last year. I need to adjust my withholding. I don’t really care for giving the Government an interest free loan.

Yes, assuming it was a 401(k), the money was pre-tax. There's a 10% penalty on top of income taxes paid for early withdrawal, but my guess is that that's probably in place to keep us little guys from making investments with tax-free income and then paying a lower rate on the investment income. Corporations have all kinds of tax gimmicks at their disposal to do just that, though.

[Crow Hunter]

I ended up owing $2700 more than normal.

Did you calculate your effective tax rate for 2017 vs 2018?

Take your taxes owed for that year and divide it by your AGI for that year.

I would be extremely surprised if you wound up having that number be higher in 2018 vs 2017. Very, very, very few people had their effective tax rates go up. Even people who thought they were going to get burned by the SALT reductions found out that they are no longer getting hit with the AMT and still having lower tax rates.

For instance my AGI went up roughly 4.5% in 2018 but my effective tax rate went down from 15.5% to 13%.

Unless you have been doing a Schedule A for significantly more than $12,000 single/$24,000 joint due to state taxes/mortgage interest/medical expenses/etc and not paying the AMT, you should be "paying" less.

Now if you didn't adjust your W-2 and didn't have enough taken out, then you might have to pay more at the end of the year but your effective tax rate likely still went down, even if you had to "pay in more" for 2018 because you didn't have enough withheld.

[glocktogo]

The usual for me, getting a little more back from fed than I have to pay to state. I try to keep it as close as possible so they don't get to play with my money all year.

[26 Inf]

I would like to see a noticeable increase in capital spending from corporations, since they got a far better deal (not just through a lower nominal rate).

You dreamer, you.

[AKDoug]

I would like to see a noticeable increase in capital spending from corporations, since they got a far better deal (not just through a lower nominal rate).

Like most corporations this year, my company sat back and tried to figure out how much better things really were going to be. As soon as I found out I would have significant savings I shared some of that savings with employees (through raises) and purchased several new pieces of equipment. Call me crazy, but I don't think corporations should pay ANY taxes. They exist to provide income to their shareholders. If there is a dividend paid out, there are taxes paid on that. If there are exorbitant salaries paid to board members, there are taxes paid on that. The pay that goes to employees of a corporation is taxed. All a tax does to a corporation (if they sell a product) is raise the price of the product.. and that's a tax on everyone who purchases that product.