The results are in: How changes in federal tax law affected me and my family

My 2018 tax returns are at the IRS and the New York State Department of Taxation and Finance. That means the annual ritual and aggravation (that Schedule C — grrr) of completing tax returns is behind me and that my wife and I have a sizable chunk of money headed our way in the coming weeks. (I don’t care what anyone says: I believe in large refunds as a good way to save money.)

As the dust settles on our returns, it also means we can see what we actually ended up paying in income tax in 2018 and how the Tax Cuts and Jobs Act of 2017 affected our taxes, at least in the first year.

The headline: our effective federal tax rate was just 1.07% of our total income for the year. That’s less than half what it was in 2017 — 3.44% — and a far cry from our highest tax rate, 10.87% in 2009. We do, however, clearly live in a high-tax state: our state rate was 7.03%, which is higher than we ever paid in the District of Columbia and has not varied much the entire time we’ve lived here (between 6.86% and 7.50%).

As far as paying less in federal income tax, we’ve benefited from 2017’s reforms. But that’s not the only thing that affected our 2018 returns. In the past year my wife and I also bought a place, so we were able to take advantage of the mortgage interest deduction. We also benefited from being able to deduct property taxes, though between those and our state and local income taxes we were hit by the new $10,000 limit on deducting state and local taxes. Many commentators — including New York’s governor, Andrew Cuomo — have suggested that this limit was specifically designed by the tax reform law’s Republican authors to target high-tax states, which are also heavily Democratic states.

We still have just three children, but we did benefit from a child tax credit that is now twice as large as before. We also have what is probably an unusually high rate of charitable giving: as members of The Church of Jesus Christ of Latter-day Saints, we donate a full 10% of our income to our church, in addition to a number of other donations we make throughout the year, such as through memberships in our local public TV and radio stations.

It is still unclear, however, how tax reform will affect us in the long term. It appears that in coming years lower-income earners will see their income taxes actually increase while the wealthy will see their taxes permanently cut. While we are not wealthy, our income is high enough that we are not likely to be affected by the law’s long-term increases.

On the other hand, what will impact us — all of us, in fact, and especially our children — are the growing deficits in the federal budget that tax reform has caused. So while it’s great that we’re getting a bigger refund this year, it has been funded by borrowing against our and our children’s future earnings. And that definitely puts a damper on any sort of refund or tax cut.

TotalMajor life events
District of Columbia and Prince George’s County, Maryland
District of Columbia
District of Columbia
13.76%First child
District of Columbia and New York City, New York
10.83%Moved to New York
New York City, New York
16.97%First full year in New York
New York City, New York
New York City, New York
12.77%Second child
New York City, New York
11.89%Third child
New York City, New York
New York City, New York
New York City, New York
7.77%Tax reform takes effect; bought a place

United States Capitol by Phil Roeder/Flickr, CC BY 2.0

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