I’ve worked on taxes for a few weeks now and have found four common situations:

1 – Simple Taxes, Part 1

These people are used to getting BIG refunds, much to my dismay.  They always qualify for EIC and full child tax credits.  This year, their refunds are not as big as they are accustomed, and they are UPSET.  They rely on these refunds each year as a windfall (which they aren’t by the way, but that’s a soap box for a different day).  The reason they are not getting the same amount is because the minute the new tax laws were in place they started depositing more money into their bank accounts.  This is because payroll taxes coming out of their paychecks were adjusted down, so net checks were higher.  Instead of getting the money at the end of the year, they are receiving it throughout the year.  For some people, this has put two to three thousand more dollars in their personal accounts during the year than at tax time.

2– Simple taxes, Part 2

These are mid middle-class earners that have never met the standard deduction threshold for itemizations and had no more than two or three personal exemptions.  They don’t own businesses or have significant investments. Now, their standard deduction has almost doubled and their marginal tax rate has decreased.  Suddenly, they have a significant refund they weren’t expecting.  This accounts for less than 3% of my clientele.  My stats are skewed significantly from the national average because I deal almost entirely in small business, upper middle-class clients.

3 – Beginner to mid Upper middle-class, with and without businesses

This is my largest clientele. These people are high earners, generally married with two or more children.  Their incomes aren’t so high that they qualified for AMT (Alternative Minimum Tax) in the past, but still doing very well.  They have always itemized their deductions (average around $30K), so they always received a $40K deduction of taxable income through itemization and personal allowances.  They have generally phased out of the child tax credits.  Now, they get more of those tax credits, but it’s not enough to cover the additional $16K in personal allowances that they no longer receive.  Also, their itemizations are limited.  For this crowd the biggest limitation is in the state and local taxes where they are now capped at $10,000.  This includes personal property taxes, real estate taxes, state income taxes and sales taxes.  They are also no longer allowed to itemize any employment related expenses for which they do not get reimbursed from their employers.  Costs like professional dues, continuing education, mileage and uniforms have been taken away.  This has been reducing this groups itemization abilities by an average of $4000.  Now, their taxable income has increased by no less than $20K.  This is also a group not known for getting significant refunds back because they don’t use the IRS as a savings account.  The average liability at the end of the year for these people has been averaging between $2500 and $3000. 

4 – Upper echelon of the middle-class

This is my second largest clientele.  These are my clients who have had to deal with AMT in the past.  They generally own businesses.  Thanks to the new tax laws, this group is no longer qualifying for AMT because the thresholds have increased SIGNIFICANTLY.  These people are receiving surprise refunds!  The refunds I have processed for these people have ranged from $3,000 – $10,000.  The reason they tend to get these bigger refunds is because they have always paid estimated taxes and/or invested copious amounts of pre-tax dollars.  However, they are all now in the process of adjusting so they do not receive large refunds.

5 – Upper-class wage earners

This is my smallest group because of how I have structured my business.  However, these people have seen very little change in their taxes.  They adjusted to the new tax laws quickly and have taken advantage of them to the best of their ability.  They’ve been in constant contact with their CPAs and financial planners. 

Ready for it to be over!

This season has NOT been fun as I predominantly work with the second group listed above.  This year, more than ever, it’s important for people to get in touch with tax experts to navigate these turbulent tax waters, ESPECIALLY if they are business owners.  This is not the year for that group to do this alone.  Things will eventually settle as everyone adjusts, but until it does, get ready for a rocky ride!  Which group do you belong to?


Misty Leinberger
Misty Leinberger