The Tax Cuts and Jobs Act made some sweeping tax law changes when it passed in December 2017. But many Americans are unclear on how those changes could affect them.
One study found that 28 percent don't understand exactly what the law changed and 48 percent say they don't know what tax bracket they're now in.
To take a deeper look into what's confusing Americans, financial website GOBankingRates created a four-question quiz that covers key parts of the law — and 77 percent of the 501 respondents who took it failed, which means they got fewer than half of the questions correct.
"Most Americans are in need of a refresher prior to filing their taxes," the report concludes. "These results appear to indicate that many taxpayers are poorly informed."
Less than a quarter of respondents could correctly answer this key question about the standard deduction.
How much is the standard deduction for a single filer in 2019?
The answer: $12,000
Percentage of respondents who answered correctly: 17.8
This is a critical part of the new tax law because the rules around deductions are substantially different than they were last year and could mean significant changes to your tax bill.
Staying in the dark about the changes could "set you up for a potentially rude surprise when you file," GOBankingRates says. It could also cause you to "plan around a refund that doesn't materialize."
In fact, some filers could see lower refunds this year and about 30 million could actually owe the IRS.
How do tax deductions work?
A tax deduction is a specific amount of money the Internal Revenue Service allows you to subtract from your total income before taxes are calculated. You can choose between two options:
- The standard deduction is a flat amount set by the IRS each year. This number is "adjusted for inflation and varies according to your filing status," the agency notes in a report.
- You can instead itemize, or individualize, your deductions. If you choose to go this route, the amount you're able to deduct is based on your expenses throughout the year.
While "the standard deduction is a specific dollar amount that reduces the amount of income on which you're taxed," the IRS explains, itemized deductions are calculated one by one and "include amounts you paid for state and local income or sales taxes, real estate taxes, personal property taxes, mortgage interest and disaster losses."
This season, the standard deduction is $12,000 for single filers. Last year, it was $6,350.
Although most taxpayers claim the standard deduction, according to a 2018 IRS report, each option has its pros and cons, depending on your situation. Read up on the differences to decide which option is best for you.
Test your knowledge of the new tax law with the full quiz.
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