How Trump’s Tax Plan Affected Me – Did It Lower My Refund?
In 2017, President Donald Trump signed a major overhaul to our tax system. This new system promised to help the average American pay less in taxes and keep their hard earned money. To be honest, I didn’t really know how Trump’s tax plan would affect me until now. My taxes have been filed and I have the results.
How did Trump’s tax plan affect me? If you compare my 2017 returns to my 2018 returns, you are going to notice a couple of things.
1) My take-home pay was significantly higher
2) The amount of federal taxes I paid increased at a higher rate than my income.
3) My refund also increased by a major percentage
Granted, these differences are just from looking at the numbers and taking them at face-value. I’m just grazing the surface here. I highly recommend NOT looking at your finances, especially your taxes, with this overly simplistic perspective because there is a lot more to the story and I’ll explain that a little later on. Before I do that though, I want to take you through some of the changes Trump’s new bill made to the tax code.
What Did Trump’s Tax Plan Change?
When Trump made this overhaul, there was only one item in the whole plan that was advertised; the change to the corporate tax rate. Yes, the corporate tax rate did drop from 35% to 21% (which I support), but that’s only a small part of the plan overall. We could spend all day discussing the details of Trump’s tax plan but whether you agree or disagree with that change is not pertinent to this article. We’re focused on how Trump’s tax plan affected you and me, personally.
There are dozens of different changes and it would take a long series of articles to go over and explain each one. Tax law is complicated and this new system doesn’t change that. Republicans were flaunting how this new bill would allow you to file your taxes on something the size of a postcard, which is just hilarious to think about. That is a lofty goal that we will probably never reach.
I do believe that overall, it made the system slightly easier. Are there still certain parts that favor the rich? Yes. Are there still plenty of loopholes? Absolutely. Someday I may go over those but for now, let’s focus on three major items that affected the majority of Americans.
1) Tax Brackets
The part that is going to affect everyone is the change to the tax brackets. From 2017 to 2018 almost every bracket decreased their parameters 1-3%, which is a significant difference. As you’ll read later, this is something that affected me personally and chances are it affected you as well. Here are the changes in a graphic:
You aren’t just paying less in taxes when you file. This change has been having an impact on every paycheck you’ve receive throughout the year. Have you noticed that your checks are slightly larger? That’s a direct impact of lowering the tax brackets.
Each paycheck you get, a certain amount is automatically withdrawn for taxes before it hits your bank account. This amount is decided by how you filled out your W4 when you were hired. It’s basically an educated guess of what your contribution should be so you don’t get stuck with a huge bill at the end of the year. That’s not a bad deal, to be honest. This estimation is based on your tax bracket, which based on what I described above, your required contribution has probably decreased, hence your paychecks will be more.
No matter which way you look at it, this is a win for the average person. If you ask me, more money = less problems.
2) Standard Deduction
It’s estimated that 94% of people take the standard deduction when filing their taxes. That makes pretty good odds that you fall into this category. For those of you that don’t know, the standard deduction is an amount of your yearly income that you don’t have to be taxed on. It’s your money and your money only.
In 2017, the standard deduction was $6,350 for single filers and $12,700 for joint filers. 2018 essentially doubled this deduction to $12,000 and $24,000 respectively. Again, whether you like it or not, that’s a win for the average American.
3) Deductions and Exemptions
The last major change that went into effect involved what exemptions could be deducted. If you don’t take the standard deduction, then you can itemize. Most people don’t do this as their itemized deductions are usually less than the standard deduction. On top of that, itemizing takes MUCH longer to calculate and figure out.
If you do go this route, it is most likely because you are taking advantage of the mortgage interest expense deduction. The ability to write this off didn’t change but other key parts did.
For example, you can no longer deduct work expenses, moving expenses, and certain
Some of these changes favor the top 1% but overall, I believe it has made the system simpler and still benefits the average American.
How It Affected Me
I wish answering this question was as easy as saying it helped or hurt me but we’re talking about taxes here so of course, it can’t be simple. Taxes are tricky.
I have been looking over my two previous tax returns from 2017 and 2018 to try to find a way to paint a simple picture. While I’ve been able to figure out the comparison, it’s nowhere close to simple. Instead of showing you my full tax return, I decided to break it down by percentage change between the two years.
Moreover, I’m doing this for obvious privacy reasons. While I do think that showing you actual dollar amounts would be the most beneficial and easie to understand, I don’t really want everyone knowing them. So percentages will just have to do for now.
At first glance, the chart below is reasonably overwhelming, I know. I don’t expect you to look at it and automatically understand what is happening and why. Even a certified accountant would have some trouble initially. Instead, I’m going to continue to reference it with each example throughout the next few sections of this article. It will makes sense by the time we’re done, I promise.
The first thing I noticed was my tax bracket. As you can see from the chart above, it dropped from 15% to 12%. Anytime I have to pay less in taxes, I’m smiling. What made me smile even bigger was when I looked up the tax brackets to see WHY I was dropped into a lower bracket.
In this case, Donald Trump’s tax plan helped me out. If you remember the image I posted above about the changes from 2017 to 2018, you can see it helped everyone out.
Even though tax brackets are calculated at the end of a tax return, I believe a good accountant should consider them first and not a week out from when taxes are due. My goal is to pay as little in tax as possible, for many reasons
One of the biggest reasons I’m in such a low tax bracket is because I have some major losses on paper. For example, Young, Dumb, and NOT Broke?! is a business and my expenses were greater than my income by about $1,500. This loss is something I can deduct to decrease my taxable income, thus lowering my tax bracket.
Income, Federal Tax, and Withholdings
To keep this short and sweet I’m going to bundle these three parts together. I’m not cutting corners here because
As a group, everything jumped a fairly large percentage. Unfortunately, this includes the amount of total taxes I paid which rose on average 61% (yikes). To break down why each part increased the amount that it did, would be too in-depth for what I’m trying to accomplish with this article and frankly you would get bored.
Let’s not avoid it entirely though. For starters, my income rose a significant amount. This is from a combination of a lot of things, but the big hitters were moving back to the Midwest for a higher paying job, acquiring another rental property, and YD&NB.
It’s no secret that if your income increases, so will the amount you pay in taxes. There’s no way around that.
Because of that, my taxes and withholdings both at the federal and state level rose. I dove into the numbers, even breaking down paychecks, and it seemed proportionally similar to last year if not a touch better.
What I did notice was that my paychecks had a little extra in them. I’m not saying $100 extra every week but somewhere around $20-$30. I know that sounds minimal but when you spread that out over a year, that’s a significant bump.
Let’s get to the one everyone cares about; the tax refund. If you have any form of social media, then chances are high that you’ve seen someone either complaining about their lack of refund or bragging about how Trump’s tax plan put more money in their pocket.
If you read my article, How A Big Tax Refund Is Actually Costing You Money, then you know how I feel about refunds. They give you a short-term feeling of happiness and a little extra cash in your pocket but in the long run, they are hurting you. If you want to learn more then check out the article. It debunks a number of misconceptions and has the numbers to back it up.
If you reference the chart above, you can see my refund increased by over 71%. This seems like a huge number but before we jump on the Trump bandwagon, let’s take a step back. If my refund was $1,000 and it went up to $1,710 (+71%) then that would be a significant refund. But that is not what happened.
Instead, my refund was about 20% of that. Yes, I did get a larger refund this year than 2017 but I immediately accessed my W4 and changed some of my contribution information so this wouldn’t happen again in 2019. Again, read my previous article about why you DON’T want a big tax refund. You’ll understand why I made those changes.
Additionally, my refund was higher because I had some more losses. I already mentioned those around YD&NB but I also added another rental property to my portfolio. After deducting the mortgage interest expense and depreciation, this also gave me a loss on paper which affected my refund.
What Does This Mean?
From a high-level point of view, Trump’s tax plan affected me in a mostly positive way. This seems to be a fairly common occurrence from everything I’ve read, whether that’s through credible articles like the NYT or a random person’s Facebook post.
I get that a lot of people are going to hate anything Trump does, just on the principle that he’s Donald Trump. Before this turns into a political debate, I think there are some specific questions you should ask yourself.
- Did you pay more or less in taxes overall?
- Were your paychecks larger?
- Was filing your taxes made easier?
If you answered yes to any of these, which I bet most of you did, then congratulations! You benefited fromTrump’s tax plan.
This year, I’m going to be even more proactive in taking advantage of certain deductions and loopholes. Loopholes, aren’t just for the rich. They are for the educated.
1) How long are these changes in affect?
What most people don’t know is that not all of these changes are permanent. Some actually phase out as soon as 2025, which is closer than you think.
For example, the individual tax brackets that I talked about above revert back to the 2017 values in 2025. Corporate will remain the same, for now. This doesn’t mean that the
2) Should I get an accountant to help me understand these changes?
I’m a huge believer in hiring an accountant to file your personal tax return. I’ve said it a hundred times that the tax code is extremely complicated, so why spend your precious time trying to understand it when somebody already does?
I think a common misconception is that accountants are too expensive, which is just not true. Personally, I pay mine $250 a year to file for me. Yes, I could do it myself but it would take me 4-6 hours and the chances of me making a mistake are pretty high. Understand the value of your time and plan accordingly.
3) Where should I find an accountant?
This is something I’m going to cover in detail in a future article but I’ll touch on it briefly here. While I do think everyone should hire an accountant, I also believe you should avoid the big box stores. I’m not going to say names specifically, as I’m not trying to get sued, but let’s just say one of them rhymes with J&R Rock.
Most of the time, the employees at
Instead, I would suggest looking for a small mom and pop type accountant. Someone you can meet with in person and call any time you have a question. I’ve had great success using accountants like this.
The Bottom Line
Unless you are an accountant, then taxes will never be fun for you. I am a self-proclaimed financial nerd and most of the time, they aren’t even fun for me. Just because something is not fun doesn’t mean that it isn’t important. When I first started this analysis of how Trump’s tax plan affected me, I came into it with a negative bias and honestly didn’t want to do it.
Most of that negativity was aimed at taxes in general but it was enhanced by the dozens of headlines I’ve seen seeing that say this new system was only going to benefit the rich. You read things about private jets and pass-through businesses. Rarely did you see anything about the effect on the average American.
I took a step back and decided the best thing I could do was analyze the info with an open mind and I’m glad I did. The conclusion I’ve come to is that most of the changes do benefit the average American. Doubling the standard deduction and lowering personal tax brackets alone is a major change.
How did Trump’s tax plan affect you? If you want some help doing analysis like this yourself then drop me a message via the Contact Us tab.
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