For many taxpayers, the annual filing of taxes comes with the expectation of receiving a much-needed refund. However, recent changes in tax laws and an increase in tax filing costs could take a significant bite out of your refund. With these changes, it is essential for taxpayers to understand the impact they may have on their finances.
One significant change that taxpayers need to be aware of is the Tax Cuts and Jobs Act (TCJA) enacted in 2017. While this act aimed to simplify the tax filing process, it introduced new complexities that can make it more time-consuming and expensive to prepare and file your taxes.
Under the new tax law, many deductions and credits have been either limited or eliminated altogether. This means that taxpayers may no longer be eligible for certain tax breaks they previously relied on. For example, the state and local tax deduction were limited to $10,000, hurting individuals in states with high income or property taxes.
Additionally, the TCJA introduced a new Form 1040, which condenses the traditional 1040 into a smaller, postcard-sized format. While this may seem like a simplification, it can lead to confusion and the need for additional schedules and forms. Taxpayers may find themselves in a situation where they need to hire a tax preparer or purchase software to ensure they are compliant with the new requirements.
The expenses associated with hiring a tax professional or purchasing tax software can vary significantly depending on the complexity of your return and the level of assistance you require. For individuals with straightforward tax situations, do-it-yourself software may be a cost-effective option. However, if you have complex investments, own a business, or have multiple sources of income, the cost of hiring a tax professional can increase substantially.
Furthermore, the costs associated with tax filing may not stop at the preparer’s fees or software expenses alone. Some tax professionals charge additional fees for services that were previously included within their standard fees. For example, there may be an additional charge for electronic filing, reviewing supporting documentation, or even answering questions related to your tax return.
While tax filing costs have been on the rise, it is important to note that the Internal Revenue Service (IRS) offers free tax filing options for individuals with lower incomes. This can be a valuable resource for those who qualify, as it can help alleviate the financial burden associated with preparing and filing taxes.
To minimize the potential impact of higher tax filing costs on your refund, it is crucial to start preparing early and stay organized. Keep track of all relevant receipts, documents, and financial statements throughout the year, making the tax filing process more efficient and reducing the risk of overlooking deductions or credits.
In conclusion, higher tax filing costs can significantly impact the size of your refund. With changes to the tax laws and the introduction of new forms and requirements, taxpayers must be aware of potential expenses associated with preparing and filing their taxes. By staying informed, being organized, and exploring free filing options, individuals can take steps to mitigate the impact of these costs on their refunds.
