It’s official: my tax refund is bigger this year…

But, to my dismay, my taxes increased

These days, all the publicity is about people who are getting smaller tax refunds this year … clear evidence, they say, that Trump lied about cutting middle class taxes.


Not really.

People seem to easily confuse “refunds” with “taxes paid”.

Of course, the relevant measure is “taxes paid” … and, most middle-classers are paying less in taxes.

But, behavioral economics and psychology kick in … and, people wrongly focus on their refunds.

If I did that, I’d be feeling great today

Last year, I had to write a check to the government.  Ouch.  This year, I’m getting a statistically insignificant refund.

Good news, right?

Nope … because my taxes went up.

My income stayed about the same … so the increase was due to the tax law changes.

When I drilled down on the causes & effects, I got a few surprises….


Here are a couple of things that surprised me … some were new news (to me), some had just faded in my memory.

1. Personal exemptions were eliminated. 

For a married couple with no other dependents, the exemption used to be $8,100.

At a 24% marginal tax rate, that’s a tax increase of about $2,000.


2. SALT (state & local taxes) include state income taxes, too.

This is an embarrassing oversight on my part.

When the SALT deduction got capped at $10,000, I got fixated on real estate taxes.

Not a big problem since the $10,000  pretty much covers most people’s real estate taxes.

But, in my tax planning, I totally overlooked state income taxes.

Dumb mistake.


3. AMT (alternative minimum tax) is dead.

This is good news … especially for uber-high earners …  a group which, I should note,  doesn’t include retired professors.

What I had underestimated was how much of the prior uncapped SALT deductions in prior years got reversed in AMT calculations.

Said differently, some of the uncapped SALT deductions were strictly illusory … and the $10,000 cap wasn’t as significant as I anticipated.


4. ObamaCare tax surcharges are alive and well.

I wrongly thought that these surcharges got deep-sixed as part of the tax reform.

To refresh memories, there’s a 3.8% tax surcharge on dividends and capital gains and a .9% Medicare surcharge on incomes over $200,000.



5. Going forward, the standard deduction ($26,000) is the team to beat.

Since SALT is capped at $10,000 … the biggest swing factors are the home mortgage interest deduction and charitable contributions.

For example, interest on a  $400,000 home mortgage @ 4% is $16,000 … which, combined with the allowable SALT, gets to the $26,000 … and makes all charitable contributions deductible.

My hunch: Going forward, many tax-focused folks with “modest” homes will implement alternate-year tax strategies …. say, by making double charitable contributions in odd-numbered years, and no contributions in the following year.

That should cause havoc with charities.


6. The tax rate reduction is statistically significant.

For example, in the range around $200,000, the marginal tax rate dropped from 28% to 24% … and, importantly, the effective rate on taxable income up to $165,000 dropped by about 2.5% (from 19.4% to 17.1%).

Those rate drops largely offset the lost exemptions and deductions.

Depending on your personal tax situation, the rate drops may more than offset the deduction losses.

In my case, they just missed.

Oh, well.


Follow on Twitter @KenHoma

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