Lexington tax expert: Expect to pay more and get less after filing this year
LEXINGTON, Ky. (WDKY) —
The Internal Revenue Service released figures on the first week of filing season on Friday, and early numbers indicate Americans are seeing smaller refunds this year.
The average tax refund so far this year is $1,865, down 8.4 percent from last year.
Enrolled agent Bill Farmer owns HTI Tax Service in Lexington and is also a former GOP state lawmaker.
Farmer said many of his clients this year are faring much worse.
"We've seen a lot of people that are down 25 or 30 percent," Farmer said. "We've seen a lot of people who are used to getting a small refund who are now having to write a fairly decent-sized check."
Farmer said part of the reason is the federal tax overhaul bill signed by President Trump, which Farmer noted does away with several itemized deductions.
"If you're someone who takes out-of-pocket work expenses, you drive your car around town for a living because you're in sales or something like that, there is no mileage deduction. If you're a truck driver, there's no more deduction for the meals, if you're on a W-2," Farmer said.
Farmer also pointed to the state and local tax deduction, which under the federal law is capped at $10,000.
"I did a tax return earlier today where the family had $18,000 in state and local taxes between their payroll taxes and their house and the cars that the parents and their three children drive," meaning that family lost out on an $8,000 deduction, which Farmer said translates to about $2,000 in tax.
"That's out of their pocket. That's a huge amount of money," Farmer said.
Then there's the state tax plan passed last year by the General Assembly, which lowers income tax to a flat rate of 5 percent but extends the state's 6 percent sales tax to 17 services not previously taxed and also gets rid of some big deductions, including medical expenses and health insurance.
"I've got people that pay up to $20-22,000 dollars for family health insurance that they can no longer deduct because they're self-employed," Farmer said. "$22,000, that's a thousand plus dollars in state tax. That's a big change when you didn't plan for it."
Farmer said there wasn't enough of a public information campaign to get people ready for either of the new laws.
If this tax season has you feeling some pain, Farmer's advice is to take this as a lesson and don't let it happen to you next year.
"You've got to adjust your withholding. Make sure that you've got the correct withholding, which you're going to have to look at what your numbers are for 2018 and try to at least have the same percentages of tax withheld so that you can get back what you think you ought to be getting back," Farmer said.
This year's filing deadline is Monday, April 15.