Tax Scam Headlines

We Prepared You For This

The first articles have now hit the papers and as your Mason team predicted, the media and misinformed citizens are claiming “tax cut fraud!” Our observation is that the majority of our clients benefited from the tax cuts by paying less in federal taxes. In addition, most of our clients are taking the standard deduction rather than itemizing. Although deductions decreased for most of our clients, which resulted in a higher taxable income, the net tax bill was decreased due to the lowering of the various tax brackets.

What has the public and media screaming, “tax cut fraud”? Many Americans will have to write a check in April 2019 rather than receiving the highly anticipated refund. Changes to the IRS W-4 in February 2018 increased America’s take-home pay in every paycheck. The changes to the W-4 resulted in an immediate cash flow benefit that was too high, which resulted in an under-withholding for federal taxes. Unfortunately, this will come as a surprise to many as the majority of Americans are misinformed with regard to income taxes. Their opinion of the tax code is thus based solely on the amount of their annual refund or shortfall.

Here's an example:

Ignoring the highlighted row, the reaction to the lower than anticipated 2018 refund will be complete and utter disappointment amongst the general public and politicians echoing “tax cut fraud.” The above example illustrates what we’ve been seeing for the last 12 months – our clients are paying less, but they may actually owe at tax time, or receive a smaller than normal refund. Unfortunately, we cannot count on our politicians or media to be smarter on this issue. Misinformed or biased parties simply take advantage of the public’s naivety. Neither the media nor the politicians of either party preempted this during the 2018 elections. The media didn’t warn of the coming tax season, Democrats didn’t campaign with slogans like “just wait until April 2019,” and Republicans didn’t warn us to change our W-4s. If one’s tax refund is down in 2018 compared to 2017, or if you must write a check, it is because the net paycheck increased in February and stayed that way all year long. If folks didn’t notice the increase or didn’t ask why, they have themselves to blame.

Fortunately your team noticed quickly what was happening and helped our clients adjust their withholding to ensure proper taxes were withheld to meet the obligation. This noise will only get louder over the next 90 days but we hope you will use this as an opportunity - an opportunity to teach your loved ones, to accept the challenge of truly understanding your tax return and to seek the truth, not the spin. Ken and I have loved this quote for over thirty years, “if it’s going to be, it’s up to me.” Together we make a great financial planning team. Thanks as always for your trust, confidence, and friendship.

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