The tax policies in the United States have been going through drastic changes ever since Donald Trump was elected president of the country.
While there are many benefits to these changes, there are also many drawbacks, especially for those people who make more than $200,000 per year and have big mortgages to pay off every month. To understand why your tax return may be lower than expected in 2022, keep reading this article and learn why your tax return is so low.
9 Reasons Why Your Tax Returns So Low?
There are several reasons why your tax return may be lower than expected in 2022, and we’ve put together some of the most common ones below to help you prepare for next year’s taxes.
1) The Rise Of Self-Employment
According to data from Intuit, the number of Americans working as independent contractors, freelancers, and business owners is on track to double over the next decade, which forecasts that there will be over 40 million self-employed workers by 2027.
More and more Americans are ditching traditional employment for the freedom—and challenge—of working for themselves. As that trend grows, a growing number of those individuals will file their taxes each year and find out how much they owe.
2) It’s Harder To Save As You Get Older
It’s normal to make less money as you get older, making it harder to save for your future. As a result, there is a likelihood that your total income will decrease slightly in 2022 compared to 2021 or earlier years. This may result in a lower-than-expected tax return next year.
3) The Average USA Income Has Dropped
The Federal Reserve reports that a third of Americans make less than $30,000 per year. Given how high taxes are, it’s no surprise that lower-income earners report income at such a low rate. If you earn less than $30,000 per year, we suggest consulting an accountant or tax preparer so you can plan accordingly.
4) Young People Aren’t Earning As Much As They Used To
According to a recent report by Statistics Canada, workers between 20 and 34 years old have seen their average incomes drop by approximately 13% since 2000.
It could be due to more extended university degree programs, increased student debt, or just plain old bad luck (if you graduated during an economic recession, your starting salary might reflect that).
5) Certain Expenses Are Being Taxed More Heavily Than Before
One possible reason why your tax return is low is that certain costs are being taxed at a higher rate than before.
If you are currently spending money on expensive professional development classes, entertainment, or travel—expenses that were previously taxed lightly or not—your deduction for these expenses will be much lower than in years past.
6) Are You Claiming The Right Amount Of Deductions?
When calculating your deductions for next year, don’t forget to consider college tuition expenses, medical costs, and mortgage interest paid.
If you aren’t already claiming these deductions and apply to you, then add them to your list of projected beliefs to claim every tax deduction.
7) Consider This Common Mistake
You can claim a certain amount of personal exemptions on your taxes each year. But if you’re married, don’t double up! For example, if you and your spouse have children, that means you could be claiming two personal exemptions per family member.
While it may not seem like a big deal at first, doubling up on these exemptions can easily take away from a larger tax refund.
8) Don’t Overlook Education Credits/Deductions
Don’t overlook education tax credits and deductions if you’re going back to school. You can reduce your taxable income by several thousand dollars, especially if you have kids and other dependents. Some of these credits and deductions expire at year-end, so start early if you think they might apply to you.
9) Plan For Alternative Minimum Tax (AMT)
Since many parts of your tax return are dependent on your income, if your income falls within a specific range, you may be subject to an alternative minimum tax.
The AMT calculation is more complicated than that of your standard tax forms and doesn’t just take into account adjusted gross income (AGI).