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

The post The Cult of the Trump Tax Refund appeared first on Daily Reckoning.

The Household Chore That Can Save You Money

This post The Household Chore That Can Save You Money appeared first on Daily Reckoning.

The average household in America consumes 10,764 (kWh) in electricity each year at an average cost of $1,351.

If you have the bucks to spend, you can chop that bill by replacing older appliances with new energy-efficient ones.

But if you’re not ready to trash a perfectly good stove or air conditioner to save a few bucks on your power bill, here are some simple steps you can take without doing an extreme home makeover. 

Let’s start with the most energy-hungry room in your home. The…

1. Kitchen

Most of what we do in the kitchen relates to heating and cooling food. You can’t just stop cooking. But there are things you can do to reduce the amount of power you’re using.

Refrigerator/freezer

This is one of biggest energy hogs in your home because it cycles on and off all day, every day. 

Check the thermostat…

If the thermostat is set lower than necessary, your fridge might be consuming up to 25% more electricity than actually needed.

The refrigerator should be in the 35-38 degrees F range, the freezer 0-5 degrees F.

Stockpile the freezer…

When your freezer is empty and you open the door, warm air rushes in. Then it takes more energy to cool the air that is trapped inside.

So keep your freezer three-quarters full to maintain the proper temperature. That will help cut the amount of time the appliance is actively running.

Maintenance pays off, too…

Dust accumulates on the coils at the rear or bottom of your frig. That can restrict cool-air flow and force the compressor to work harder. Cleaning is an easy job. Just roll out the appliance and vacuum the mechanism every six months.   

Switch to ice trays…

Turn off the automatic icemaker. There should be a switch on the unit or a lever that you can move to shut it off.

I know… it’s nice to hold your glass under the dispenser and have ice cubes fall into it. But the motor inside is an energy hog. By using ice trays instead of the icemaker you could save money each year.

After your meals…

Let hot food cool down and properly wrap leftovers before storing. Hot food in a refrigerator forces the compressor to work extra hard and wastes energy. 

Dishwasher

It takes the same amount of water and electricity to run a dishwasher whether it’s half-empty or full. So run the dishwasher when it’s full.

And since much of the energy your washer uses is from the drying cycle at the end, set to air-dry instead of heat-dry.

Stove/oven

Use your microwave or toaster oven to heat up leftovers. They use less electricity than your convection oven.

Crock pots use less energy, too. Plus they won’t turn your kitchen into an oven.

Cover pots and pans while cooking. You’ll trap the heat inside and cut cooking times by about 10%.

Make sure you match the pan to the burner size. A small pan on a large burner is heating up the room instead of the food.

It takes awhile for burners to cool down. Turning them off several minutes before the end of the suggested cooking time could save you a few dollars each month.

It’s tempting to crack open the oven door to take a peek at your food. But that blast of hot air that hits you is costing you big time. Keep the oven door closed as much as possible. This alone could save you up to $20 per year.

When using the oven, pick the right dish. Ceramic or glass conducts heat more efficiently than metal cookware and will let you turn down the temperature by about 25 degrees.

2. Bathroom

Shorter showers and a lower temperature on the hot water heater thermostat will reduce your energy consumption.

In fact, for every 10 degrees you dial down the setting, you can save three to five percent on your bill.

3. Laundry room

Washing your clothes in cold water can save roughly $66 on heating costs.

Hold off doing wash until you have a full load. Cutting the total loads each year by 25% could save 3,227 gallons of water.

Set the washer’s spin speed on high to reduce the amount of time your clothes need to be in the dryer

and save about $11 annually.

Drying clothes on cold cycles rather than hot ones could cut your bill by around $66 per year.

Cleaning the lint trap in your dryer between loads will help the appliance work more efficiently.

And if you’re really serious about cutting the electric bill, dry your clothes on a line outside or inside on a drying rack.

4. Bedrooms

Rather than only relying on the air-conditioning, turn on the ceiling fans. Fans can make the rooms feel three to eight degrees cooler.

And when you leave the rooms, turn off the fans so you don’t waste electricity.

5. Living room

Like the bedrooms, a ceiling fan can cut reliance on the a/c.

Moreover, during the winter you could lower the thermostat by 5 degrees, reverse the direction the fan turns to push the warm air down, and stay cozy. 

6. Air conditioning

In many parts of the country, the a/c is the top power guzzler. Don’t cool an empty home. If you have a programmable thermostat, set it so the temp can go up a few degrees when you’re at work or out shopping.

And even if you don’t have one, get in the habit of changing the settings before you go out.

Air filters get packed full of dust. And that dust clogs the passage for air that feeds the air handler. The compressor then has to work harder, which means more electricity used.

You can buy throw away filters for $10 or so. At that price, replacing them once a month is a good investment. 

Bottom Line

The 6 suggestions I gave you are only a few of the changes you can make in your home and lifestyle to cut your power bill each month.

Other ideas include: Switching to compact fluorescent light bulbs, sealing up leaks around windows, and using heat-generating appliances, like dryers and dishwashers, at night when the temperature cooler and the a/c doesn’t have to work as hard.

The potential list is huge.

But if you tackle them one at a time, the savings will add up.

To a richer life,

Nilus Mattive

— Nilus Mattive
Editor, The Rich Life Roadmap

The post The Household Chore That Can Save You Money appeared first on Daily Reckoning.