It’s Tax Time…in November?
First, it is always fun (?) to see where we rank in terms of income tax. The following table was just released by the National Taxpayer’s Union. The organization analyzed the recent IRS statistical release for the tax year 2015.
Adjusted Gross Income (AGI) is the number at the bottom of the first page of the Federal Form 1040. AGI is essentially all of the income an individual (or couple) receives less a few adjustments. Think of it as your gross receipts before any deductions.
Read the table this way. You are in the top 10% of all tax returns if your AGI (all income) was at least $138,031 in 2015. If that is the case, you and the rest of the top 10% of all taxpayers with adjusted gross income took in 47.4% of all adjusted gross income reported to the IRS and paid 70.6% of the Federal taxes on individuals.
My students are shocked to learn that upon graduation they are in the top 50% of all taxpayers.
Note also how progressive the income tax is. At each level, the higher the AGI, the higher the percentage of the Federal tax actually paid.
Second, it is no new news that the structure of personal income taxes changed in 2018. The following table shows some of the tradeoffs in the new tax structure.
Looking across my 2017 tax clients, it was hard to predict whether their 2018 Federal taxes would increase or decrease as their Federal income taxes depended on the configuration of their particular 2017 income and deductions.
The moral of the story for 2018 is not to wait to do your taxes for March or April of 2019 as many taxpayers will be surprised that they have a Federal tax liability. On the other hand, many taxpayers will find they have a refund coming and wished they had done their taxes earlier.
My suggestion is to resolve now…in November…to pay attention to collecting your tax docs in a timely way to start your tax return in late February so you have time to react before April 15, 2019, if the final tax return is not going in the direction you want.
Third, if you have earned income and did not max out your 401(k), 403(b), or IRA contribution in 2018, resolve to increase your contribution by $100 per month in 2019. Since changing that deduction usually takes around a month, start the change in November to have the change in place by January 2019.
I went downstairs and asked Riley (my Golden Retriever who used to share my office until arthritis in her hips limited her ability to negotiate steps) what she thought about starting early on taxes. Riley takes me out for her walks first thing in the morning and in the evening – whether I need it or not. It was mid-day when I posed the question to her. She immediately got up and went to the door, thinking we were going for a walk. Sorry, Riley, no walk right now, but I got her point that it never hurts to go for a walk earlier than expected. Same with doing taxes.