Georgians have a clearer concept of taxes than the average American, but there’s still confusion in the Peach State as the country moves forward with its new tax laws.
A survey of 3,398 Georgians conducted by Georgia Credit Union Affiliates, the state trade association, found that the majority of respondents, 69 percent, know how much they pay in income taxes each year. But 30 percent of respondents admitted they haven’t been paying attention to how much they pay.
Those respondents more closely resemble the average American. A recent Nerd Wallet study found that almost half – 48 percent – of Americans don’t know in which tax bracket they belong. In fact, the study found that about 1 in 14 Americans don’t understand how tax brackets work.
There’s no doubt taxes can be convoluted. The federal tax code, the document governing taxation, grew to 74,608 pages in 2014, according to a report in the Washington Examiner.
But failure to understand certain tax nuances can become costly. The Nerd Wallet study found that many Americans are leaving money on the table because they don’t know they can take certain deductions. For example, 90 percent think it’s illegal to take a home office deduction when the office in question is used for activities other than work.
In fact, the study found that only 16 percent of Americans who file income taxes take advantage of five common and legal tax-saving strategies, including delaying income to the next year, contributing to a traditional IRA after Dec. 31 but before the tax deadline and paying property taxes early.
Deductions like these are commonly missed year after year,but as a result of the new tax laws, another mistake is expected to trip up a larger segment of the population than usual. The 2018 tax year will be the first in which consumers may notice discrepancies in their employer withholding, an area which should be evaluated annually.
Most consumers know how their finances should look when their withholdings are adjusted correctly. According to a different NerdWallet survey, about 56 percent of Americans know they should adjust their withholdings to get their tax refunds as close to $0 as possible. In the GCUA survey, about 50 percent of respondents said they understood they should strive for that $0 refund.
While the majority of respondents in the GCUA survey, 76 percent, check their withholdings once a year, another 24 percent only check their withholdings every five years or when they start a new job.
Those are the consumers who could suffer in a year with new tax laws. According to a report by the Government Accountability Office, about 73 percent of taxpayers’ employers are over withholding from their paychecks as a result of the law changes. These taxpayers may receive larger refunds from the IRS come April, but their paychecks throughout the year will be missing money that could have gone toward bills and everyday expenses.
Conversely, the GAO reported that 21 percent of taxpayers –about 30 million Americans – are being under withheld by their employers as a result of the new tax law. These taxpayers could be stuck with an unexpected bill from the IRS in April.
According to the GAO, the IRS has recommended that Americans stay diligent about checking their withholdings – especially as the new tax laws take effect.
Tips for Tax Success
- Start getting organized now. It might be tempting to wait until the tax deadline looms to start thinking about filing. But you stand a better chance of getting the most out of the system if you file carefully and rationally. As soon as you receive your W-2 from your employer, begin by making sure the information matches your pay stubs. Then, begin gathering relevant documents including last year’s return, any relevant property data or real estate documentation, proof of charitable donations and/or receipts for medical, business or education expenses.
- Adjust your exemptions and withholdings. Check your current W-4 form to make sure you’re claiming all the allowances that make sense for you. Also, make sure your employer isn’t over withholding or under-withholding money from your paycheck. At the end of the year, your goal should be to owe no money and receive no money from the IRS.
- Understand what money is taxed and what isn’t. Specific accounts in the U.S. are exempt from taxation. For instance, growth and earnings in a Roth IRA aren’t taxed. Neither is money in a flexible spending account which can be used to pay for medical or childcare expenses (which can be used for medical or childcare expenses) or income from a 529 education plan, which can be used to save for higher education.
- Always file taxes — no matter what. In the eyes of the IRS, late is better than never. Even if you’re having a difficult time getting the documents together and know you’ll miss the deadline, be sure to file, eventually. There’s no penalty for missing the April 15 deadline if you are owed a refund — you’ll just get your cash back later. If you’re more than three years late, you’ll lose any tax refunds you were entitled to in those three years.
- Get help. If you’re confused about any portion of your taxes or feel you’re not receiving all the deductions you should, seek help. Free tax return preparation programs are available to people with limited incomes (generally making less than $54,000 a year), people with disabilities, the elderly and taxpayers who speak limited English. Credit unions can help you find the right tax help for you.
Georgia United Credit Union Director of Business and Development Kim Wall said nobody should be embarrassed by gaps in tax knowledge.
“Unless you majored in tax accounting, we don’ tknow many people who look at a 1040 tax form and say, ‘this is going to be a piece of cake,'” Wall said. “Many people are intimidated by the IRS or are afraid of making a mistake. Also, there may be anxiety if you have not withheld enough taxes and owe the IRS money.”
Wall suggests taxpayers skip the stress and seek help if any questions arise.
Georgia United Credit Union, in partnership with the University of Georgia’s College of Family & consumer Sciences, Dalton College and the IRS, hosts the Volunteer Income Tax Assistance Program in certain branches each year.
VITA offers free tax help to taxpayers who are elderly, less than proficient in English, limited in income and/or disabled.
“If consumers don’t have a clear understanding of how taxes work, they could miss deductions or delay filing, which could result in penalties,” she said. “Programs like VITA are important; not only because VITA offers free tax return to individuals with low to moderate income, but because partnerships like this — between the IRS and the education and business communities — are a great example of collaborating to meet a need in the community.”
Wall said she encourages taxpayers to take advantage of any resources they can to make tax returns a simpler process.
“You may want to seek help with your taxes if you need to file an extension, you have penalties, you have multiple deductions or if you are not comfortable with the new tax laws,” she said. “You don’t have to figure out the new tax laws on your own! And don’t forget to file on time — by April 15!”