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How Tax Refund Advance Loans Really Work

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MagnifyMoney did some digging around to give you the lowdown on refund advances. Here’s what you need to know.

The checkered past of refund anticipation loans

These so-called “refund anticipation loans,” as they were once called, aren’t exactly new. They’ve been around since the late ’80s, when e-filing was just picking up momentum.

According the U.S. Census Bureau, these loans typically came with triple-digit APRs and hefty fees. What’s worse, 2009 data put out by the IRS suggested that these loans were marketed mainly toward low-income taxpayers. And more often than not, they were presented in ways that were misleading and falsely advertised, according to the National Consumer Law Center (NCLC).

Not surprisingly, refund anticipation loans grew to be a source of consternation among consumer advocates. To carry them out, tax-prep companies would take their cut, then deposit the remainder of the refund into a temporary bank account that the taxpayer typically accessed via a prepaid bank card.

Fortunately, these loans became a thing of the past in 2012 amidst major outcry from consumer advocacy groups like the NCLC and others. Ira Rheingold, executive director of the National Association of Consumer Advocates, tells MagnifyMoney that they were as predatory as payday loans.

“Thanks to consumer complaints and government action, things have gotten somewhat better, but these refund anticipation loans were known for sky-high interest rates and exorbitant fees,” he says.

How today’s tax refund advances work

Liberty Tax offers a free tax refund advance loan option.

These days, refund anticipation loans have been rebranded as tax refund advances. But the change runs deeper than just the name. According to top tax-prep servicers like H&R Block, Jackson Hewitt and Liberty Tax, these revamped products are 100 percent free for those who qualify. Advance amounts range depending on eligibility, but Liberty Tax is offering as much as $3,250.

Tax-prep servicers are exceptionally tight-lipped when it comes to the qualifying criteria. (See our handy chart below.) H&R Block is the most forthcoming, but there are still a lot of question marks.

Elgibility requirements include providing proper identification and having a “sufficient” tax refund, whatever that means.

However, there are a few things that could get you declined, including having bad credit, failing to present relevant tax forms like W-2s and 1099s, or not meeting certain income requirements, among other things. If you are approved, the loan amount is deposited into a temporary bank account you can access with a prepaid debit card, unless the servicer offers a direct deposit option. Either way, the loan itself is indeed fee-free and has a 0 percent APR.

Be that as it may, experts still encourage consumers to approach with caution.

“From the perspective of the consumer, I’d say they need to be very skeptical,” Adam Rust, director of research at consumer advocacy group Reinvestment Partners and managing director of the nonprofit WiseWage, told MagnifyMoney. “Private companies don’t provide free services and banks don’t make free loans.”

H&R Block is one of several tax preparer services that offers a tax refund advance loan to customers from $500 to $3,000.

Tax advances are indeed more accurately described as loans. The cash actually comes from banks, which are reimbursed when your refund comes in. In order to offer these advances, Rust says tax-prep companies cover the bank fees, essentially making them free for the consumer.

“It’s actually a cost item for the preparers, which is one more reason to suspect that these loans aren’t really free,” he said. “The price may say free, but that doesn’t mean it can’t be recovered within the cost of the tax prep.”

This is where things get a little less transparent. H&R Block declined a phone interview with MagnifyMoney, so I called up my local storefront and asked if there’s an additional charge for getting a tax refund advance. In other words, will my tax preparation fee be the same whether I get a refund advance or not? I was told it would be, but locking down an accurate estimate for the service isn’t easy.

According to the National Society of Accountants, the average tax-prep fee for federal and state returns during the 2017 filing season was $273 for folks who itemized their deductions; $176 for those who didn’t. The takeaway here is that the complexity of the return appears to increase consumer costs. To get an actual estimate, you’ll need to present your tax information, but the price you’re quoted is likely to vary.

In 2016, consumer advocacy group Georgia Watch sent mystery shoppers into paid tax-prep firms in low-income neighborhoods in southwest Atlanta. What they found was “a stunning lack of knowledge and professionalism from preparers, vast inconsistencies in preparation fees, and a wide range of outcomes given the same inputs at each site.”

Rheingold, who was not involved in the research, isn’t all that surprised by the findings.

“The quality of tax preparers in high-volume firms is often pretty poor,” he said.

Hidden costs to look out for

Refund transfers

If you’re declined for a tax refund advance loan, some tax preparation companies may offer you a concession prize: the chance to get a refund transfer.

A tax refund advance may be advertised as free, but the same can’t be said for a refund transfer.

Instead of paying your tax-prep fees at the time of service, you can defer it with a transfer. The tax preparer essentially creates a short-term account where your refund is deposited, at which point they’ll take their fee directly. H&R Block charges $39.95 for a federal refund transfer. It’s called an assisted refund at Jackson Hewitt, where it’ll run you $49.95. Meanwhile, Liberty Tax says you have to “consult your tax office” for pricing details.

It’s marketed for its speed and convenience, but Rust says taxpayers should think twice before opting in. Almost half of Liberty Tax’s filers last year ended up getting a refund transfer, according to the company’s 2017 annual report.

“That’s really telling to me because the refund advance is marked as free, but the refund transfer isn’t,” Rust said. “So why are so many people paying for the transfer?”

What Rust is getting at is that it appears as though the lure of a free refund advance gets people in the door, at which point they’re sold on the refund transfer after getting declined. Since offering these loans is a cost product for tax-prep companies, Rust says it’s a fair assumption.

The cost of accessing your funds

Prepaid debit cards essentially serve as substitute checking accounts for those who don’t have one. Many tax preparation companies offer prepaid debit card products that customers can sign up for in order to have their tax refunds deposited there. However, these cards my carry additional fees that can eat away at the value of the tax refund itself.

“One of the things we’ve seen is the growth of prepaid debit cards to access your refund advance,” said Rheingold. “Accessing your money through an ATM [often] comes with fees, which means you’re being charged to access your own money.”

Jackson Hewitt puts refund advance funds on the American Express Serve Card if you’re not doing a direct deposit into your checking account. H&R Block goes with the Emerald Prepaid Mastercard, and Liberty Tax uses a Netspend prepaid Mastercard.

Where to get a tax refund advance

Here’s what the major tax-prep companies are offering. Again, all advances are marketed as free, and you have to apply at a participating office by Feb. 28. Jackson Hewitt is in the game as well, but their website pushes people to visit a local office to learn more.

 

H&R Block

Liberty Tax

Loan amounts

$500, $750, $1,250 or $3,000

$500, $800, $1,300, $3,250

Eligibility

According to their website: "You first must meet certain eligibility requirements such as having a sufficient tax refund from the IRS, and provide appropriate identification. You then submit an application to BofI Federal Bank, the lender. The bank will evaluate your application based on standard underwriting criteria and makes the decision to approve or deny your application."

Must visit a Liberty Tax office for eligibility requirements

When is the advance available?

Typically the same day

Usually within 24 hours

Alternatives to a tax refund advance

You can always file earlier to expedite the arrival of your refund. Without a tax refund advance, most folks who file electronically can expect their refund in less than three weeks, according to the IRS. The most common cause for delay is if you’re claiming the Earned Income Tax Credit or the Additional Child Tax Credit, which will push your refund at least into late February.

Either way, for simple returns where the filer is only bringing in a W-2 and not itemizing, Rust says most preparers can probably complete the job in less than 90 minutes.

“Should that cost more than $200? Should the chance of receiving an advance justify spending that much when, instead, a low-income filer could go to a VITA site and have their return prepared for free?” he asked.

Rust is referring to the IRS Volunteer Income Tax Assistance program, which offers free tax preparation for people who earn $54,000 or less per year. Those who are above the income threshold can also opt for out-of-the-box software like TurboTax. Prices vary here depending on the complexity of your return, but it’s generally much cheaper than going with a storefront tax preparer.

Final thoughts on tax refund advances

If getting a tax refund advance means adding to your tax-prep bill, Rheingold says it doesn’t make financial sense to get one.

“Even if it says it’s free, it’s a safe bet that these places are baking the costs into the tax-prep fee to make up the difference.”

That said, if you’re in dire financial straits, it may be your only resource for quick cash — but buyer beware.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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This Small Business Owner Got Creative to Support Her Family During the Coronavirus Pandemic — You Can, Too

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When Quinn Vise first opened her salon, Quinn Vise Hair Design & Co., in Holland, Mich., in 2014, she never imagined a global crisis would threaten the livelihood of her family and nearly two dozen employees. But six years later, her life and business were drastically impacted as the coronavirus pandemic swept across the United States.

Upon learning that she would have to close the salon temporarily due to her state’s stay-at-home orders, Vise felt numb. “I didn’t have any answers for my employees or guests or my landlord,” she explained.

Since the pandemic hit the United States in March, close to 40 million Americans have filed for unemployment, with industries like retail, food service and personal care being especially hard-hit. With most states implementing lockdowns or stay-at-home orders at some point, the country’s more than 30 million small businesses also faced a new level of uncertainty. According to an April survey of nearly 1,000 small business owners by the National Small Business Association, 80% experienced decreased customer demand and almost all were concerned about the economic impact of COVID-19.

When the pandemic threw Vise such an unexpected curveball, she had to quickly change course in order to protect her family and her business.

Learning how to stay flexible in times of crisis

A week before her salon’s closing was imminent, Vise wondered how she would pay for the business’s rent and utilities with no revenue and not enough of a buffer in her savings account. While she would apply for government relief programs, she knew she didn’t have time to wait around for the relief to come through. And rather than applying and waiting for unemployment insurance, which Vise worried wouldn’t bring in enough money, she began searching for other jobs.

She applied for positions with her local hospital, home health care agencies and even manufacturing factories, but the only offer she received was from grocery delivery company Shipt. She accepted the job and planned to work as much as possible delivering groceries until government relief arrived.

Vise threw herself into the role, working six or seven days a week to bring in as much income as possible. It was taxing on her body, she said, but it provided the flexibility she needed. Four of her five children still live at home, so she needed to balance taking care of her family with bringing in income to support them.

She had her two salon managers take over communicating with her team so she could focus on working for Shipt to cover the salon’s bills. “I just kept thinking, ‘I have to save my business and employees; I can’t wait on unemployment and possible loans,’” she said.

While she wasn’t able to pay her staff during this time, most of her team members were able to receive unemployment insurance, and the rest lived at home and got by with the help of family, Vise said.

The new job with Shipt was exhilarating at first given Vise’s love for challenges and entrepreneurship, but it began to take a toll on her. “The stress was breaking my mental state,” she said, “and averaging 15 to 20 grocery orders per day was breaking down my body.” Fortunately, Vise’s salon received a Paycheck Protection Program loan from the Small Business Administration in the second round of funding, which allowed her to let go of her hectic temporary job.

“At that point, I discontinued Shipt, got unemployment for myself, focused on schooling my children and brought the saving of the salon back into sharp focus,” Vise said. If Michigan’s phased reopening goes as planned, Vise’s salon should be able to resume business in mid-June, though she’s prepared to be flexible if the timeline changes.

If your accounts are dwindling, don’t panic

When the pandemic hit and her salon was forced to close, Vise didn’t have enough savings to keep her family and business afloat. If you don’t have enough money in your checking account or emergency fund to get you by during a period of unemployment, here are a few tactics you can try.

1. File for unemployment

Unemployment insurance is handled on a state level, though during this current crisis, the federal government has provided additional funding and new guidelines that make it more accessible and with a higher payout. If you’ve been holding out hope for finding a new job or being rehired by your old employer, consider filing for unemployment in the meantime to help you get by.

2. Deliver groceries

With fewer people leaving their homes, demand is up for grocery delivery service. While shopping for and delivering groceries eventually took a toll on Vise, it helped her get by financially during a time of uncertainty. “It was vitally important that through this awful situation, I could face myself and my employees and my community — that I have done everything possible to care for my responsibilities while following health guidelines,” she said. Delivering food might not be ideal, and you could be overqualified. But if you need money now, Vice found that it is a flexible and in-demand way to make some cash.

3. Look for online opportunities

The internet is rife with at-home money-making opportunities. Know a musical instrument? Offer online classes. Quick at the keyboard? Become a transcriptionist. Have a friend who’s trying to work at home while corralling kids? Tutor or entertain and “babysit” the kids via Zoom while the parents are in conference calls. From becoming a virtual assistant to teaching a new language to managing social media, with a little digging you may just be able to find an online outlet for your skills.

4. Take on temporary work

If you don’t want to make deliveries, numerous other businesses are hiring for jobs that don’t require driving. Many grocery stores, plus retailers like Amazon and Walmart, are hiring workers due to surges in demand. Or if you can’t risk the potential exposure, check out job postings on sites like FlexJobs to find remote work opportunities.

5. Get creative

These are weird times, and thinking out of the box could help you earn some extra cash. Maybe a housebound neighbor would be willing to pay you a little cash to walk their dog or do their shopping. Or someone in your neighborhood who’s trying to undertake an outdoor home or gardening project might be game to compensate you for help from a safe physical distance. Ask your friends and neighbors if they need any assistance, and consider posting on Facebook or Nextdoor and sharing what services you can offer.

6. Sell your stuff

If you’re really hurting for cash, why not offload some items you no longer need and sell them for some extra money? There are apps like letgo, or easy tools like Facebook Marketplace, Nextdoor and eBay. You can even sell unused gift cards that have been accumulating in your desk drawer at websites like Cardpool. You can still sell items face-to-face as long as you follow social distancing guidelines (like have the person set down the cash, and you set down the object). However, make sure you take the appropriate steps to protect yourself and others, and consider leaving sanitizing wipes for the people buying your stuff.

7. Reduce your spending

Now is also an ideal time to take a close look at your budget and figure out how you can cut down costs to make your money go further until you have stable income again. This could mean canceling some streaming or subscription services (or switching to a cheaper plan), cooking from scratch instead of getting meal deliveries or putting a pause on discretionary online shopping. Retail therapy can feel comforting during tough times like this, but it can also add up fast.

8. Look for emergency grants and relief funds

If government funding and extra gigs aren’t enough to help you survive the pandemic, many organizations have started to offer financial assistance to people on a local level. Many of these are grants that don’t require repayment. For example, in the San Francisco Bay Area, several organizations have formed relief funds to help creatives and artists who have lost income in the pandemic. In another example, in San Antonio, Texas, The Center, which is the city’s LGBTQ+ community resource, created an emergency fund for locals in the LGBTQ+ community who have lost income and are struggling to pay for essentials.

9. Consider cashing in your points

If you’ve been accumulating credit card points, now may be the time to cash in. Instead of saving up for a vacation that may or may not need to be canceled due to pandemic-related travel concerns, you can redeem points for a cash buffer to help cover immediate needs.

The coronavirus pandemic has forced us all to adapt quickly, and it has put many of us in a tough financial spot. But Vise’s story shows that if you’re willing to pivot and learn new skills, even if it feels like you’re overqualified, there are ways to get by and earn money until things stabilize.

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The Trump Tax Plan Explained

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When the Trump tax plan, formally known as The Tax Cuts and Jobs Act (TCJA), was enacted in 2017, taxes changed drastically for many Americans. Noted as the most sweeping rewrite of the tax code in more than three decades, the tax reform implemented new federal income tax brackets and doubled the standard deduction, among many other changes.

The majority of the Trump tax plan’s changes went into effect on Jan. 1, 2018, which means most Americans felt the impact of the TCJA for the first time when they filed their 2019 taxes.

What the Trump tax plan changed

Some of the changes made by the Trump tax plan may already be familiar to you, but here you can read about all of the changes it introduced or jump ahead to read about the rules you’re most interested in:

A 529 college savings plan is a tax-advantaged savings account designed to encourage saving for qualified future higher-education costs, such as tuition, fees and room and board. Your money is invested and grows tax free.

Old Rule

New Rule (Effective Jan. 1, 2018)

Previously, 529 plan savings could only be used on qualified higher education expenses.

New Rule (Effective Jan. 1, 2018)

In a major victory for wealthier families, you can now use 529 savings for private K-12 schooling.

Tax benefits are now extended to eligible education expenses for an elementary or secondary public, private, or religious school.

The new rules allow you to withdraw up to $10,000 a year per student (child) for education costs.

The individual mandate was a key provision of the Affordable Care Act that required non-exempt U.S. citizens and noncitizens who lawfully reside in the country to have health insurance.

Old Rule

New Rule (Effective Jan. 1, 2019)

Consumers who did not qualify for an exemption and chose not to purchase insurance faced a range of tax penalties, depending on income.

New Rule (Effective Jan. 1, 2019)

The individual mandate is out.

Starting Jan. 1, 2019, consumers who do not purchase health insurance will no longer face penalties.

GOP lawmakers argue that the measure will decrease spending on the tax subsidies it offers to balance out the cost of premiums for millions of Obamacare enrollees.

However, without the mandate, experts caution that fewer healthy and young people will sign up for health coverage through the insurance marketplace, which will likely lead to increases in premium costs for those who remain the marketplace and could even induce some insurers to drop out of the market altogether. It’s a big blow to supporters of the long-embattled health care law.

Old Rule

New Rule (Effective Jan. 1, 2019)

The individual paying alimony or maintenance payments could deduct payments from their income. The person receiving the payments included them as income.

New Rule (Effective Jan. 1, 2019)

The person making alimony or maintenance payments does not get to deduct them, and the recipient does not claim the payments as income. This goes into effect for any divorce or separation agreement signed or modified on or after Jan. 1, 2019.

The individual alternative minimum tax, or AMT, often imposed on higher-income families, especially those with children, who live in high-tax states — but not necessarily the ultra rich. It requires many households or individuals to calculate their tax due under the AMT rules alongside the rules for regular income tax. They have to pay the higher amount. Whether or not a someone pays AMT depends on their alternative minimum taxable income (AMTI). AMTI is determined through a series of assessments of a taxpayer’s income and assets — the explanation of calculating AMTI takes up two pages in the tax bill, so we’re not getting into the details here.

Old Rule

New Rule (Effective Jan. 1, 2018)

The exemption amount was $84,500 for married joint-filing couples, $54,300 for single filers and $42,250 for married couples filing separately.

The AMT exemption began to phase out at $120,700 for singles, $160,900 for married couples filing jointly and $80,450 for married couples filing separately.

New Rule (Effective Jan. 1, 2018)

The AMT is here to stay but fewer households will have to face it.

Under the new rules, which are in effect from Jan. 1, 2018 through Dec. 31, 2025, married couples filing jointly will be exempt from the alternative minimum tax starting at $109,400. Exemption starts at $70,300 for all other taxpayers (other than estates and trusts).

The exemption phase-out thresholds will rise to $1,000,000 for married couples filing jointly, and $500,000 for all other taxpayers.

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers could exclude up to $20 a month of qualified bicycle commuting reimbursements from their gross income. That included payments from employers for things like a bicycle purchase, bike maintenance or storage. Workers could claim the exclusion in any month they regularly use a bicycle to commute to work and do not receive other transit benefits.

New Rule (Effective Jan. 1, 2018)

The exclusion is suspended through 2025.

Old Rule

New Rule (Effective Jan. 1, 2018)

The child tax credit was $1,000 per child under the age of 17.

The credit was reduced by $50 for each $1,000 a taxpayer earned over certain thresholds. The phase-out thresholds started at a modified adjusted gross income (AGI) over $75,000 for single individuals and heads of household, $110,000 for married couples filing jointly and $55,000 for married couples filing separately.

New Rule (Effective Jan. 1, 2018)

The child tax credit doubles to $2,000 per qualifying child. Up to $1,400 of the child tax credit can be received as refundable credit (meaning it can go toward a tax refund). The new rule also includes a $500 nonrefundable credit per dependent other than a qualifying child.

The credit begins to phase out at an AGI over $200,000 — for married couples, the phase-out starts at an AGI over $400,000.

This rule is in effect through 2025.

Old Rule

New Rule (Effective Jan. 1, 2018)

Under a four-step graduated rate structure, the top corporate tax rate was 35 percent on taxable income greater than $10 million.

New Rule (Effective Jan. 1, 2018)

Permanently cuts the top corporate tax rate to 21 percent.

The estate tax, aka the “Death Tax” is a tax levied on significantly large estates that are passed down to heirs.

Old Rule

New Rule (Effective Jan. 1, 2018)

Estates up to $5.49 million in value were exempt from the tax.

The top tax rate was 40 percent.

New Rule (Effective Jan. 1, 2018)

Doubles the exemption for the estate tax.

Now, estates up to $11.2 million are exempt from the tax.

Old Rule

New Rule (Effective Jan. 1, 2018)

Homeowners could exclude up to $250,000 (or $500,000, if married filing jointly) of gains made when selling their primary residence, as long as they owned and primarily lived in the home for at least two of the five years before the sale. The exclusion could be claimed only once in a two-year period.

New Rule (Effective Jan. 1, 2018)

Homeowners can still exclude gains up to $250,000 (or $500,000 if married filing jointly) when they sell their primary residence, but they have to have lived there longer. People who sell their homes after Dec. 31, 2017 now have to use the home as their primary residence for five of the eight years before the sale in order to claim the exclusion. It can only be claimed once in a five-year period.

The new rule expires on Dec. 31, 2025.

Old Rule

New Rule

Taxpayers were previously allowed to deduct out-of-pocket medical expenses that exceed 10 percent of their adjusted gross income or 7.5 percent if they or their spouse were 65 or older.

New Rule

The threshold for all taxpayers to claim an itemized deduction for medical expenses is lowered to 7.5 percent of a filer’s adjusted gross income.

The change applies to taxable years from Dec. 31, 2016 to Jan. 1, 2019.

Taxpayers can take the miscellaneous tax deduction if the items total more than 2 percent of their adjusted gross income. The amount that’s deductible is the amount that exceeds the 2 percent threshold. These are some of the major changes coming to the miscellaneous tax deduction.

Old Rule

New Rule (Effective Jan. 1, 2018)

Tax preparation: Taxpayers could claim an itemized deduction of the amount of money they pay for tax-related expenses, like the person who prepares their taxes or any software purchased pr fees paid to fee to file forms electronically.

Work-related expenses: Workers could deduct unreimbursed business expense as an itemized deduction, like the cost of a home office, job-search costs, professional license fees and more.

Investment fees: Taxpayers could deduct fees paid to advisors and brokers to manage their money.

New Rule (Effective Jan. 1, 2018)

Tax preparation: Taxpayers may not claim tax-preparation expenses as an itemized deduction through 2025.

Work-related expenses: The bill suspends work-related expenses as an itemized deduction through 2025.

Investment fees: Under the new rules, the investment fee deduction is suspended until 2025.

Old Rule

New Rule (Effective Jan. 1, 2018)

Homeowners were allowed to deduct interest paid on mortgages valued up to $1 million on a taxpayer’s principal residence and one other qualified residence.

They could also deduct interest paid on a home equity loan or home equity line of credit no greater than $100,000. These were itemized deductions.

New Rule (Effective Jan. 1, 2018)

New homeowners can include mortgage interest paid on up to $750,000 of principal value on a new home in their itemized deductions.

The old, $1 million caps continues to apply to current homeowners (those who took out their mortgages on or before Dec. 15, 2017), as well as refinancing on mortgages taken out on or before Dec. 15, 2017, as long as new mortgage amount does not exceed the amount of debt being refinanced.

Homeowners CAN deduct interest paid on a home equity line of credit or home equity loan, so long as the loan was used to buy, build or substantially improve your home.

These changes are set to expire after 2025.

Old Rule

New Rule (Effective Jan. 1, 2018)

Previous tax law allowed taxpayers to deduct moving expenses as long as the move was of a certain distance from the taxpayer’s previous home and the job in the new location is full-time.

New Rule (Effective Jan. 1, 2018)

The new tax bill suspends the moving expense deduction through 2025. Until then, taxpayers are not permitted to deduct moving expenses.

Moving-related deductions and exclusions remain in place for members of the military.

Pass-through businesses are generally small businesses (also some big firms) that don’t pay the corporate income tax. Instead, the owners report the corporate profits as their own income and pay taxes based on the individual tax rates along with their regular personal income tax.

Some of the common types of pass-through businesses are partnerships, LLCs (limited liability companies), S corporations and sole proprietorships.

Old Rule

New Rule (Effective Jan. 1, 2018)

All pass-through business owners’ income was previously subject to regular personal income tax.

New Rule (Effective Jan. 1, 2018)

Under the new laws, pass-through business owners can deduct up to 20 percent of their qualified business income from a partnership, S corporation or sole proprietorship.

Individuals earning $157,500 and married couples earning $315,000 are eligible for the fullest deduction.

Old Rule

New Rule (Effective Jan. 1, 2018)

Individuals could deduct uninsured losses above $100 when property was lost to a fire, shipwreck, flood, storm, earthquake or other natural disaster. The deduction was allowed as long as the total loss amounted to greater than 10 percent of the taxpayer’s adjusted gross income.

New Rule (Effective Jan. 1, 2018)

The new tax bill only allows taxpayers to claim the deduction if the loss occurred during a federally declared disaster, through 2025.

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers could reduce their adjusted gross income by claiming personal exemptions — generally for the taxpayer, their spouse and their dependents.

Taxpayers could deduct $4,050 per exemption in 2017, though the deduction was phased out for taxpayers earning more than certain AGI thresholds. The phase out began at an AGI over $313,800 for married couples filing jointly, $287,650 for heads of household, $156,900 for married couples filing separately and $261,500 for all other taxpayers.

New Rule (Effective Jan. 1, 2018)

Personal exemptions have been suspended through 2025.

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers who did not itemize could claim the current standard deduction of $6,350 for single individuals, $9,350 for heads of household or $12,700 for married couples filing jointly

New Rule (Effective Jan. 1, 2018)

Standard deductions for all nearly double under the new rules.

Individuals see standard deductions rise to $12,000; forlim heads of household, it rises to $18,000; and for married couples filing jointly the standard deduction increases to $24,000.

Old Rule

New Rule (Effective Jan. 1, 2018)

Taxpayers had the option of including state and local property, income and sales taxes as itemized deductions.

New Rule (Effective Jan. 1, 2018)

Taxpayers are limited to claiming an itemized deduction of $10,000 in combined state and local income, sales and property taxes, starting in 2018 through 2025.

Taxpayers cannot get around these limits by prepaying 2018 state and local income taxes while it is still 2017. The bill says nothing about prepaying 2018 property taxes.

Old Rule

New Rule (Effective Jan. 1, 2018)

Student loan debt discharged due to death or disability was taxed as income.

New Rule (Effective Jan. 1, 2018)

Under the new tax bill, student loan debt discharged due to death or disability after Dec. 31, 2017, will not be taxed as income. The rule lasts through 2025.

The table below shows the difference between the tax rates and brackets before the Trump tax plan went into effect on Jan. 1, 2018 and after.

Tax Rules Pre-TCJA

Tax Rules Post-TCJA

Before 2018, there were seven tax brackets.

The rate on the highest earners was 39.6 percent for taxpayers earning above $418,400 for individuals and $470,700 for married couples filing taxes jointly.

New Rule (Effective Jan. 1, 2018)

The new rules retain seven tax brackets, but the brackets have been modified to lower most individual income tax rates. The new brackets expire in 2027.

Top income earners — above $500,000 for individuals and above $600,000 for married couples filing jointly — falls from 39.6 percent to 37 percent.

The majority of individual income tax changes would be temporary, expiring after Dec.
31, 2025.

Pre-TCJA Tax Brackets Post-TCJA Tax Brackets (Effective Jan. 1, 2018)
Single Individuals
Taxable Income Tax Bracket Taxable Income Tax Bracket
$9,325 or less 10% $9,525 or less 10%
$9,326 to $37,950 15% $9,526 to $38,700 12%
$37,951 to $91,900 25% $38,701 to $82,500 22%
$91,901 to $191,650 28% $82,501 to $157,500 24%
$191,651 to $416,700 33% $157,501 to $200,000 32%
$416,701 to $418,400 35% $200,001 to $500,000 35%
Over $418,400 39.60% Over $500,000 37%

Married Individuals Filing Joint Returns and Surviving Spouses
Taxable Income Tax Bracket Taxable Income Tax Bracket
$18,650 or less 10% $19,050 or less 10%
$18,651 to $75,900 15% $19,051 to $77,400 12%
$75,901 to $153,100 25% $77,401 to $165,000 22%
$153,101 to $233,350 28% $165,001 to $315,000 24%
$233,351 to $416,700 33% $315,001 to $400,000 32%
$416,701 to $470,700 35% $400,001 to $600,000 35%
Over $470,700 39.60% Over $600,000 37%

Heads of Households
Taxable Income Tax Bracket Taxable Income Tax Bracket
$13,350 or less 10% $13,600 or less 10%
$13,351 to $50,800 15% $13,601 to $51,800 12%
$50,801 to $131,200 25% $51,801 to $82,500 22%
$131,201 to $212,500 28% $82,501 to $157,500 24%
$212,501 to $416,700 33% $157,501 to $200,000 32%
$416,701 to $444,550 35% $200,001 to $500,000 35%
Over $444,550 39.60% Over $500,000 37%

Married Individuals Filing Separate Returns
Taxable Income Tax Bracket Taxable Income Tax Bracket
$9,325 or less 10% Not over $9,525 10%
$9,326 to $37,950 15% $9,525 to $38,700 12%
$37,951 to $76,550 25% $38,701 to $82,500 22%
$76,551 to $116,675 28% $82,501 to $157,500 24%
$116,676 to $208,350 33% $157,501 to $200,000 32%
$208,351 to $235,350 35% $200,001 to $300,000 35%
Over $235,350 39.60% Over $300,000 37%

Tax deductions that didn’t change after the Trump tax plan

Teacher deduction

Teachers can deduct up to $250 for unreimbursed expenses for classroom supplies or school materials from their taxable income.

Electric cars

Electric car owners who bought a vehicle after 2010 may be given tax credit of up to $7,500, depending on the battery capacity.

Adoption assistance

Adoptive parents are allowed a tax credit and employer-provided benefits up to $13,570 per eligible child in 2017.

Student loan interest deduction

Student loan borrowers may deduct up to $2,500 on the interest paid for student loans every year.

How the Trump tax plan affects you

Low-income earners: Changes to the tax rates at lower-income levels were less pronounced or nonexistent compared to the changes in higher brackets, offering no tax break for lower-income households.

Middle-class earners: The decreased tax rates should have decreased the taxable income for middle-class earners, as long as they adjusted their W-4 withholding forms.

High-income earners: With their high levels of income falling into more brackets, high-income taxpayers had more to gain from the lowered tax rates. Those with large amounts of income from investments also benefited from the decreased tax brackets for capital gains, meaning their investment income was also reprieved, especially at high levels.

High-value estates: The Trump tax plan doubled the estate tax exemption amount from $5.49 million in 2017 to $11.2 million in 2018.

Areas with high state and local income tax: The Trump tax plan amended the state and local income tax (SALT) deduction so that taxpayers can only claim up to $10,000 in combined state and local income, sales and property taxes as an itemized deduction. Taxpayers living in places with high state and local taxes will get disproportionately hit by this change.

Taxpayers using personal exemptions: A personal exemption allowed you to deduct set amounts for each taxpayer and dependent on your tax return, which could have benefitted taxpayers with large families of dependents. This exemption and possible tax benefit for many has now been suspended.

Those without health insurance: The Trump tax plan eliminated the tax penalty you could face if you did not enroll for health insurance under the Affordable Care Act (ACA) and did not qualify for an exemption.

FAQ: Tax filing tips for 2020

Taxes for tax year 2019 are due to the IRS by July 15, 2020, due to the extension granted because of the coronavirus pandemic. Hopefully, filers won’t face an unwelcome surprise this year if they end up owing more than usual, as was the case too often last year, and instead receive a nice tax refund.

You might have been overpaying or underpaying on your taxes before the tax reform went into effect, which could mean a tax bill or bigger-than-expected tax refund this time around.

To avoid confusion, consult a tax professional and consider adjusting your allowances on your W-4.

If you end up owing taxes, you’ll need to pay your bill by July 15th or contact the IRS to sign up for a payment plan. Late payments will result in penalties and additional fees.

The IRS typically sends out tax refunds within 21 days of receiving your filing. It can take longer on some occasions, depending on your situation. If you file your return electronically, you can check the status of your refund after 24 hours from filing, through the IRS’ Where’s My Refund? tool. If you mail in your return, you can check the status four weeks after mailing. You can also use your smartphone to download the IRS2Go app to check your refund status.

It’s certainly tempting to use the money to book your next much-deserved vacation. But treating yourself isn’t necessarily the best way to spend your tax refund. Instead, consider stashing it away inside a savings vehicle and forgetting you even had extra cash to spend. An easy option is to boost your emergency savings by depositing your refund in a high-yield online savings account. That will grow your refund efficiently over time and can save you some financial grief in the future. Here are a couple of the best high-yield online savings accounts that have had consistently competitive rates over the past two years and are accessible no matter your deposit or balance:

Institution
APY
Minimum Account Balance to Earn APY
Capital One
360 Performance Savings from Capital One

1.30%

$0

SEE DETAILS 

Member FDIC

Barclays
Online Savings Account from Barclays

1.15%

$0

SEE DETAILS Secured

on Barclays’s secure website

Member FDIC

A savings account can be easily accessed in case you need the funds in a pinch, unlike with a high-rate certificate of deposit. A CD works better if you need to save towards a longer-term goal, like making a down payment on a house in a few years. Once you make your deposit into a CD, it grows undisturbed for the length of its term. In exchange for leaving your deposit untouched with the bank, you get to grow your CD funds at high interest rates, resulting in some solid savings growth when the term ends. Here are some of the best one-year CD rates that have been consistently competitive over the past two years:

Institution
APY
Minimum Account Balance to Earn APY
Barclays
12 Month Online CD from Barclays

1.00%

$0

SEE DETAILS 

Member FDIC

Goldman Sachs Bank USA
High-yield 12 Month CD from Goldman Sachs Bank USA

1.35%

$500

SEE DETAILS Secured

on Goldman Sachs Bank USA’s secure website

Member FDIC

Other options include using your refund to expand your investment portfolio or placing the funds in an IRA. Investing your refund can be a riskier way to grow your money since your returns depend on the market instead of an APY. And of course, saving in an IRA is a smart way to invest in your retirement future. The IRS even allows you to split your refund between multiple accounts when you sign up for direct deposit. This makes it easy for you to save your refund in various ways.

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