By Sheryl Rowling
SAN DIEGO — Why is this tax season different from the others? Oy vey! The new tax law has really caused confusion for tax filers. Here are the common questions:
Why do I owe more tax/have a lower refund than previous years?
The new tax law essentially raised taxes on the vast majority of California residents. It is a combination of less deductions allowable without an offsetting decrease in tax rates. Also, the withholding amounts were lowered (to give the “impression” that taxes were lowered under the new law – just prior to mid-term elections) even though taxpayers did not change their exemption amounts. So, higher taxes with less withholding translated into higher balances due/lower refunds.
Why aren’t some deductions claimed on my tax return?
The new tax law eliminated some deductions – like miscellaneous deductions (tax prep fees, investment management fees, legal expenses, employee business expenses, union dues, etc.), state and property taxes over $10,000 and personal exemptions. California did not conform to this, so you will likely notice that your California taxes have not been impacted.
What is the QBI deduction?
The new tax law allows a deduction from qualified business income up to a maximum of 20% (based on a whole maze of complicated rules). Even if you don’t have a business, you might qualify for this deduction because dividends from REIT investments qualify as QBI.
How can I ensure 2019 is not as bad?
I have two recommendations. 1) Be sure to check your withholding. Too little taxes withheld equals more tax due as well as potential underpayment penalties. 2) Seek the advice of a qualified CPA. There are some planning techniques that can save you money. These strategies can include “bunching” deductions (so you can itemize every other year), maximizing the QBI deduction and more tax-efficient ways of donating to charity.
*
Rowling is a certified public accountant, personal finance specialist, and principal of Rowling & Associates. She may be contacted via sheryl.rowling@sdjewishworld.com