The Ongoing New Financial Era Thread

Blue&White
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Re: The Ongoing New Financial Era Thread

Postby Blue&White » Mon Feb 11, 2019 2:11 pm

The mortgage deduction was capped, but it still exists.

Also,

Unless their take-home pay was higher due to lower withholding. Don't people look at their pay stubs?

That's what happened, though. Two things changes as of last January 31:
Thing 1: the marginal tax rates went down as a result of the new tax law passed in December 2017
Thing 2: the IRS changed the withholding guidelines for employers so people would get more each pay check but less, if anything, when they filed.

Because they did Thing 2 the same year they did Thing 1, people probably didn't know exactly how to gauge their withholdings. It doesn't help that people generally don't pay attention to these things and it probably was not well understood. But, doing both in 1 year is probably a major contributor. I suppose that any year the IRS changed the withholding guidelines it was a good bet that the average taxpayer wasn't going to be aware of it, but they would have to notice a change in their pay each time they got a check or direct despot. Or, you would think. But, because the guideline changes happened in the year they lowered rates there was no obvious way to understand that happened unless you were paying attention. And, there is so much information thrown at us these days it's hard to find the important nuggets like this one.

I did know about it, but that is more a factor of luck than anything. It certainly wasn't information I was seeking out. I am curious who else here know about it. But, I can easily understand how it was missed by most people. Especially in a year when the tax rates changed.
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psu_dad
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Re: The Ongoing New Financial Era Thread

Postby psu_dad » Mon Feb 11, 2019 2:52 pm

Because they did Thing 2 the same year they did Thing 1, people probably didn't know exactly how to gauge their withholdings.

OK. That makes sense, I guess.

I suppose I'm in the minority on the issue of wanting a tax refund. That just means you let the government take too much from your paycheck all year, effectively giving them an interest-free loan. No thanks.
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LioninVa
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Re: The Ongoing New Financial Era Thread

Postby LioninVa » Mon Feb 11, 2019 3:15 pm

I prefer to get a small or no refund for those reasons, _dad.

B-Dub, I was not as aware of the implications as you seem to be. I knew my withholding were wrong so I increased them a bit to keep from owing too much like last year.

psu_dad
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Re: The Ongoing New Financial Era Thread

Postby psu_dad » Mon Feb 11, 2019 3:15 pm

I am curious who else here know about it.

Obviously I knew about Thing 1. I didn't know about Thing 2. I always look at my pay stubs, at least for the first couple of months of each year. I did notice last year that my federal withholding (as a percentage of my gross pay) went down from the previous year. But I reduced my work hours last year and I attributed the lower withholding rate to the lower income.

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PS - I don't mind sending the IRS a check in April (as opposed to getting a refund) but this year's check will be larger than usual. I also tweaked my withholding a couple of weeks ago to fix that.
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Blue&White
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Re: The Ongoing New Financial Era Thread

Postby Blue&White » Mon Feb 11, 2019 3:28 pm

I suppose I'm in the minority on the issue of wanting a tax refund. That just means you let the government take too much from your paycheck all year, effectively giving them an interest-free loan. No thanks.

I think you are definetely in the minority. I read over the weekend that something like 75% of Americans get a refund. Which means that 75% are loaning the government money at 0% interest (similar to my checking account). I am part of that 75%, too. And, I know that, from a financial perspective, this is a stupid thing to do. But, I do it anyway.

There is a whole psychology to it, I think. You give someone $125 (as an example) a month spread out over 2 or so paychecks, they barely notice it. But, hand them $1,500 in April and people certainly notice that. It's a forced savings account. It makes no logical sense but a lot of peple - including people who really should know better (i.e. "me") do it.

I'm better than I used to be, though. When I lived in NJ I got like $8,000 back evey year. It was nuts. That was because my SALT was so incredibly high. The last few years I've gotten around $2,500 or so back. We'll see what happens this year. This year I'm hoping I don't owe.
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psu_dad
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Re: The Ongoing New Financial Era Thread

Postby psu_dad » Mon Feb 11, 2019 3:39 pm

There is a whole psychology to it, I think.

I'm sure you're right. And I'm not a complete jerk. I understand I'm fortunate that I don't live week-to-week on my income and that writing the IRS a big check in April is not a hardship for me. I imagine that people that do live week-to-week really look forward to the refund.

But that doesn't excuse you. You're lucky I can't give noogies over the internet.
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Blue&White
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Re: The Ongoing New Financial Era Thread

Postby Blue&White » Mon Feb 11, 2019 3:53 pm

Here is my explanation/defense: if the money comes in twice a month, it will get spent. Probably by my wife. If I get a refund back in April of $2,500 or thereabouts, I can say "look honey, we saved the money to go away this summer with the family". I get about the same interest I would get if I banked the money, and my wife can't say "hey, maybe I'll just spend it now and still insist we go away".

That's a big part of why I do it. Or, did it. I think this is the year it all catches up with me. I'm in that small group of people who may end up worse off from this tax cut in terms of tax liability. Between the caps on the mortgage deducions, the caps on State and Local taxes, the elimination of the deduction on home equity loans (which did force me to refinance) and the deductions my wife lost, I may be screwed. I am going to start playing with my return maybe next weekend. My wife is going to Florida to see her parents so I'll have the weekend to myself. I'm thinking of pulling all the documentation and a bottle of whiseky and making an evening out of doing my taxes and getting sh!tfaced.

I'll let you all know how it goes.
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psu_dad
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Re: The Ongoing New Financial Era Thread

Postby psu_dad » Mon Feb 11, 2019 4:42 pm

I'm in that small group of people who may end up worse off from this tax cut in terms of tax liability.

I'm just the opposite. I've paid off my mortgage, so my "itemizable" tax deductions are now lower. My SALT isn't low, but that wasn't going to get me to the standard deduction of 24K.

We also took advantage of the 2-year window of lower tax rates to aggressively pay off our HELOC from our retirement money. My wife had a modest retirement account that was earning 4.5% and the HELOC was up to 5%. We paid half the balance last year and the remainder last month. The taxes on the retirement account withdrawals were much less than they would have been a couple of years ago. And I have a feeling that taxes are going back up next year.
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PittGradPSUMad
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Re: The Ongoing New Financial Era Thread

Postby PittGradPSUMad » Mon Feb 11, 2019 8:03 pm

I used the same approach to pay off my heloc. What began as a 2.75% rate in 2014 hit 5% last year. The payoff is one of the reasons I have a higher tax bill this year. I opt to defer the federal tax payment when I take money from my retirement account; however, I hope to offset the tax hit by investing the heloc payment in my Roth IRA. Now, if the market would just co-operate.
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PSUgrower
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Re: The Ongoing New Financial Era Thread

Postby PSUgrower » Mon Feb 11, 2019 9:52 pm

psu_dad wrote:If the tax rates went down, and everything else remained the same with individuals, then it stands to reason people would expect that they would get around the same refund they got last year.

Unless their take-home pay was higher due to lower withholding. Don't people look at their pay stubs?

No! Why would I look at my pay stub, that would take time. Do we even get pay stubs?