The Cult of the Trump Tax Refund

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Last week, I told you how I got a surprise correction from the IRS – one relating to Trump’s new tax laws and my Solo 401(k) retirement plan.

What I didn’t mention is the monetary impact of that note – essentially, I ended up owing a couple thousand more in taxes than I had previously figured.

Before you shed a tear, on balance, the new tax laws were a net positive for my specific situation last year.

Even though my Solo 401(k) contributions were slightly less valuable, the qualified business income deduction was a big win …

While the SALT cap is painful for someone like me living in California – with high state income taxes and high property taxes – at least my oversized mortgage is still fully deductible because I purchased my home before the new lower limits kicked in …

And with a young child in the home, the doubling of the child tax credit (plus higher phaseout thresholds), was an additional positive.

I could keep going.

The point is that many things changed and how the sum total affected you depends on the very specific details of your life.

How did Americans Fare Under Trump’s Tax Changes?

The IRS just released its first batch of official numbers, using tax returns filed by May 23rd.

Roughly 10% of filers are still using the benefit of extensions and haven’t turned in their returns yet. Moreover, that group of people tend to be higher-income filers – with more complicated returns – and they represent 20% of all the income reported to the IRS.

Still, we can get a good idea of where things stand.

Here are some general takeaways:

#1. Households making somewhere between $100,000 and $250,000 received fewer refunds and were more likely to owe money.

That comes from a Wall Street Journal analysis of the IRS’ data. But we’ll talk more about this idea in just a second. It isn’t really what it seems.

#2. Average refunds for households making $250,000 to $500,000 rose 11%.

I suspect this has a lot to do with the aforementioned QBI and other benefits for businesses and their owners.

If you’re starting to feel like only the wealthy made out …

#3. From a high-level view, about the same number of Americans got refunds this year (79% vs. 80%) and for roughly the same amount ($2,879 vs $2,908) as the 2017 tax year.

So if you’re now feeling like the ultra-wealthy made out and everyone else got shafted, you’re not alone.

Barron’s recently cited a Gallup poll conducted in April, which found only 14% of Americans thinking their taxes went down.

However, the reality is far different …

#4. The Tax Policy Center says roughly two-thirds of American households paid less in taxes overall year-over-year while 6% paid more.

How is this possible?

How can half of the population not realize their taxes actually went down under the new laws?

Beyond the fact that many people outsource their tax preparation and thus have no real connection to what’s happening in that part of their life, many Americans only look at their refunds.

If they get money back after they file, they’re happy.

If they get more than last year, they’re really happy.

Of course, none of that makes rational sense.

This year, for example, IRS withholding amounts were adjusted earlier in the year.

That means many workers had less money getting taken out of their regular paychecks. So what they ended up owing or getting back is not a good indication of how they fared overall.

So What’s with the Overreaction?

The entire “cult of the tax refund” is completely misguided and always has been.

Getting a large refund from Uncle Sam simply means you loaned him a good chunk of money at zero-percent interest over the course of the year.

That’s hardly something to celebrate!

Instead, your goal should be paying exactly what you owe and not a penny more.

Or, even better, paying less than you owe without incurring underpayment penalties and then writing a check for the difference come filing time.

And bonus points if you have the difference invested and earning some type of return during the interim … which is the polar opposite of what almost everyone else does.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

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2 Reasons Why Your Refund Isn’t as Big as You Thought…

This post 2 Reasons Why Your Refund Isn’t as Big as You Thought… appeared first on Daily Reckoning.

Are you accustomed to receiving a fat tax refund from the IRS… money that you often use for a summer vacation or to save for a rainy day?

This year, though, you might’ve gotten a smaller one than expected. Or worse yet, you may have had to include a check when you submitted your 2018 return.

You’re not alone.

According to the IRS, the average 2018 refund check for early filers was $2,640… 16% less than in 2017.

So why were so many caught off guard when the tax overhaul had promised relief?

Two reasons…

First, the Tax Cuts and Jobs Act (TCJA), which became law last year, lowered the rates for five of seven tax brackets. And the IRS changed its withholding tables to more closely match the amount owed.

So rather than withholding the same amount of tax as they did from your paychecks in 2017, your employer took out less.

That means your refund may not be as big as you expected because less tax was taken out of your paychecks and you got more money throughout the year.

Second is that many folks were affected by the biggest set of major changes in 30+ years, such as:

  • The end of personal exemptions
  • The elimination of the job-related expense deduction
  • Doubling of the standard deduction
  • Doubling the maximum Child Tax Credit for dependent children from $1,000 to $2,000 per qualifying child
  • The $10,000 cap on the deduction for state and local taxes

Retool Your Tax Withholding…

To prevent the same shock from happening this tax year, you may want to fine tune how much is withheld from your paycheck and how big of a refund you’d like. Factors include: marital status and how many dependents you have.

You don’t want a too big refund, because that’s like giving Washington an interest-free loan. Nor do you want to owe a big balance, since you could also get slapped with a penalty.

My advice: File a new Form W-4 so that your employer can withhold the correct amount of federal income tax from your pay.

The good news is that the IRS has a free withholding calculator that makes the job of completing a new Form W-4 a snap. You’ll need two documents: most recent pay stub and most recent tax return.

For an example how the calculator works, suppose you’re married, file jointly, and both of you are 60 years old.


Next, your salary is $75,000. Through mid-June of this year, $2,600 has been withheld with $200 coming out of each paycheck.

Let’s assume you’ll take the standard deduction…


As you can see, figuring what to put on Form W-4 is a piece of cake. The calculator provides specific recommendations on the number of allowances you should claim. It might also recommend an additional flat-dollar amount withheld from each paycheck… again so there’s no surprises when you file your return in 2020.

In our example, if you don’t make any changes, you’ll owe $287 come tax filing time. But if you follow the “Here’s how” instructions and file a new Form W-4, you’ll receive a refund of around $200.

As soon as you complete the Form W-4, give it to your employer so you can make up withholding shortages, or recover overages, by year end.

Also, check your withholding whenever there is a major change in your life, for instance, getting married, getting divorced, or starting a part-time business.

After you’ve finished with the Form W-4, you might want to checkout…

More Free Stuff from the IRS!

The IRS’ homepage has a boatload of free tools for you that can make the tax filing process a tad easier.

For instance, you can:

  • Get your refund status
  • Make payments
  • Get answers to tax questions
  • Find forms and instructions

And as long as your income is below $66,000, you can file your taxes for free with Free File’s easy to use software.

However, there’s a potential drawback if you use the program… one that Washington doesn’t talk about…

Some preparers have found that in reviewing clients’ Free Filer returns the IRS had made adjustments on those returns that were in the government’s favor and did not apply all rules to the taxpayer.

And those erroneous adjustments resulted in demands for payments, rather than refunds. 

Although up to 100 million taxpayers, or 70% of filers, are eligible to use the Free File program, whether it will continue is a coin toss.

On June 10, 2019, Congress passed the Taxpayer First Act of 2019. It’s meant to modernize the IRS and strengthen taxpayer protections.

The original version of the bill included a provision for Free File… the final approved version did not.

Understanding refunds can be tricky, but hopefully this issue was able to clear things up for you a bit.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 2 Reasons Why Your Refund Isn’t as Big as You Thought… appeared first on Daily Reckoning.

7 Steps to Shock-Proof Your Finances

This post 7 Steps to Shock-Proof Your Finances appeared first on Daily Reckoning.

On January 25th President Trump announced an end to the 35-day partial government shutdown.

This day came as a relief to many of the 800,000 government employees and contractors who were left scrambling to cover their bills until their paychecks kicked in again.

A lot of people did just fine during the government shutdown, thanks to emergency savings and the added safety net of a working spouse. But for others, the sudden halt in cash flow created a crisis.

This episode was a reminder for how many Americans live paycheck to paycheck. The Federal Reserve announced last year that 40% of Americans don’t have enough saved to write a $400 check in an emergency.

And growing consumer debt seems to only be making matters worse. Since 2013, we’ve had more debt than in 2008, driven mostly by high student and auto loans.

The good news is we’re paying off this debt fairly well because we’ve just had one of the longest bull markets in history. The bad news is one day the stock market will cycle into a bear market and the economy will slow leaving many scrambling again to pay their bills.

To help you prepare for the next sudden financial crisis, here are 7 steps you can take to shock-proof your finances.

1. Build a Budget

You need a budget so you know how much money you have coming in and what expenses you have to cover. A quick and easy way to build a budget is use an online budgeting tool or app that links to your bank, investment, credit card and other accounts. Mint and Personal Capital are my favorites.

If you’ve never budgeted before, a simple breakdown you can follow is the 50/30/20 rule. 50% of your income should go toward essential expenses, like your mortgage, utilities, food, car, etc. 30% is allocated to nonessentials, think eating out, shopping, entertainment.

And 20% of your income goes to savings like your retirement accounts, emergency fund, and paying down any outstanding debt.

2. Checkmark Nonessentials

Once you’ve built your budget, grab a red marker or open a document on your computer or phone and checkoff all your non-essential expenses that could go if you needed to tighten your belt.

Memberships and subscriptions are primary suspects. If you have a gym membership you barely use, you can cancel it and workout at home. Cable TV and streaming subscriptions are also nonessentials that can get cut if you run into a financial squeeze.

The point is have a list of these nonessentials ready so when the day comes, you can easily lighten the load.

3. Build a Rainy Day Fund

A rainy day fund is different than your emergency fund. Your emergency fund is meant for catastrophes like losing your job, divorce, or medical or mental disability that affect your cash flow.

Rainy day funds are for urgent but less-catastrophic needs, like car and home repairs, medical and vet bills, or short-notice travel to be with a sick relative.

Open a sub-savings account and set up auto-transfers on a bi-weekly basis to start funding your rainy day savings. How much should you save? For most homeowners, anywhere between $3,000-$5,000 is enough. Renters can probably get away with $1,500-$2,000.

4. Slash Your Debt

Even if there’s no financial crisis looming, you should be paying down your debt regularly. Pay your debt off from highest to lowest interest rate first. You may even be able to consolidate your debt into a lower-rate, sometimes 0% credit card or loan.

Make sure you can pay off enough of the balance to make the transfer worthwhile during the 0% window. Alternatively, look for a debt-consolidation personal loan. There are several new online lenders that offer decent rates.

Go to, and enter details about yourself (like education level, income and employment status), the type of debt you have and how much you’d like to borrow.

The site generates offers from different lenders, like LendingClub, LightStream and SoFi.

5. Prime Your Credit

The best time to get approved for a line of credit is before you need one. If you think you might need to fall back on a line of credit, then get approved for a HELOC now.

Also ask your credit card provider to raise your credit limit. This will do two things: one, help you lower the amount of available credit you use (which will lift your credit score); two, give you more credit at your disposal in a pinch.

TransUnion did a study and found consumers are 50% more likely to receive a credit-line increase between January and May, so now is the perfect time to ask.

6. Boost Your Paycheck

The recent tax overhaul lowered taxes for millions of Americans, but only 19% of taxpayers updated their withholding in response to the new law, says H&R Block.

If you’re getting a sizeable refund this year, adjust your withholding and give your paycheck a boost. You can use the extra money to pay off high-interest debt, build your rainy day fund or increase retirement savings.

Use the IRS’s Withholding Calculator tool to figure out how to reduce the amount withheld from your paycheck.

7. Top Up Your Health Coverage

If you have a policy with a deductible of at least $1,350 for single coverage or $2,700 for family coverage, you can contribute up to $3,500 to a health savings account for single coverage or $7,000 for family coverage in 2019, plus $1,000 if you’re 55 or older.

Top up savings if you have the means. Contributions are tax-deductible and can be withdrawn tax-free for eligible medical expenses in any year.

Follow these 7 steps and you’ll be in a good position to weather any financial storm.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post 7 Steps to Shock-Proof Your Finances appeared first on Daily Reckoning.

Walmart, Target and TJX Reel From Delayed Tax Refund Checks… But Not For Long…

This post Walmart, Target and TJX Reel From Delayed Tax Refund Checks… But Not For Long… appeared first on Daily Reckoning.

Have you received your tax refund yet?

Chances are good that if you were owed a refund, your return has been delayed. The government shutdown caused the IRS to furlough workers during some of the most important weeks for processing tax returns. And it’s taking the agency time to catch up.

So even if you were responsible and filed your tax return well ahead of the crowd, you may still be waiting on your refund check.

That’s the bad news.

But today, I want to show you why this delay could actually lead to a much bigger check for you.

In fact, whether you’re expecting a tax refund or you’ve got to write that dreaded check to Uncle Sam, this tax refund delay can help you capture some unexpected wealth.

Let’s take a look!

The New Tax Rates Delay Refunds

There’s been a lot of talk about tax refunds recently thanks to the new tax bill that went into law last year.

The new tax bill lowered the tax rate for most Americans, but also made major changes to what deductions families and individuals can make.

We’ve talked about many of these changes here at The Daily Edge, including the lower withholding rates that have allowed Americans to keep a larger portion of every paycheck throughout the year.

Now that it is time to turn in your tax return for 2018, many of those changes are under scrutiny.

I’ve become keenly aware of these issues in part because my brother is an accountant and is currently up to his neck in personal and small business tax returns. I got a chance to see him over the weekend and he was exhausted. It’s been a stressful year as he has had to work extra hard to make sure that all of the changes are being taken into account for the tax returns he prepares.

“Zach, it’s not just that the IRS was essentially closed for a couple of months. It has also taken extra time for many of the software platforms that we use to update all of the new changes.”

So these are two big issues that are causing a delay in the tax refunds Americans would typically be receiving this time of year.

First, the IRS was closed, causing a pileup in the number of returns waiting to be processed.

And second, individuals and business are taking more time to actually file their return because it is taking some time to handle the changes from the new tax bill.

This has had a pronounced effect on retail spending in the United States, which in turn is setting up an interesting opportunity for investors.

Delayed Spending Boosts Spring Profits

Wall Street has been a bit frustrated with how the delay in tax refunds has affected spending in the United States.

You may have heard that recent reports on total retail sales have come in a bit weak. And those “weak” readings have naturally sent some retail stocks lower. After all, Wall Street is worried that lower tax returns could lead to disappointing profits for retailers.

But here’s the thing…

Those tax refunds aren’t “gone.” They’re just taking a little longer to work their way through the system.

Which means American consumers will still be spending the cash that they get back from Uncle Sam.

The spending may have just been deferred from February and March to heavier spending in April and May.

So what does that mean for us here at The Daily Edge?

Well I’m expecting those refund checks to drive surprisingly strong retail sales in this new second quarter of 2019. And I expect those strong sales to catch Wall Street investors off-guard.

Over the past couple of months, a few key retail stocks have been stuck in a holding pattern waiting for good news to hit.

Shares of Wal-Mart Stores (WMT) for example are trading at the same level from late January. And shares of popular retailers like Target Corp. (TGT) and TJX Companies (TJX) have just barely made back losses from late in 2018.

The stock prices for these retailers are being held back in part because many taxpayers haven’t yet received their refunds. And so they’re not in a rush to head out and spend that cash.

But this month, as accountants wrap up their customers’ tax returns and the IRS catches up on its inflated workload, we should see tax refunds making their way to retailers around the country.

And as these retailers start reporting strong spring sales, stock prices will be poised to jump higher.

If you’re one of the forward thinking investors who owns shares of these retailers, you’ll be in prime position to profit from a jump in sales.

So as we head toward the April 15th tax filing deadline, make sure you are positioned to profit from all of those shoppers who will be taking their checks to spruce up their spring wardrobes!

Here’s to growing and protecting your wealth!

Zach Scheidt

Zach Scheidt
Editor, The Daily Edge
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