Tax refunds, dependents, business income deduction dominate H&R Block’s top client questions

March 26, 2019 : Teresa L. Clark

Questions surrounding the impact of tax reform have dominated what H&R Block clients are asking during their tax prep process – both in front of their laptop doing their own taxes and when they are sitting in a tax office in front of a tax pro. They are asking most frequently about refund size, how separated/divorced parents claim dependents, and landlord eligibility for the qualified business income deduction.

“While the more specific reasons tax reform impacts individual taxpayers are based on their unique tax situations, at H&R Block we are seeing some common threads between what clients are asking tax pros at the tax desk and in the help features in our online products,” said Lynn Ebel, manager at The Tax Institute at H&R Block. “Our tax expertise is in all of our products and services.”

Following are the questions (and answers) being asked the most by H&R Block clients this tax season.

Why do I owe this year when I always get a refund? or Why is my refund lower?

Tax reform impacts virtually everyone with new tax brackets and tax rates, but the reasons why a refund is lower depend on a taxpayer’s specific tax situation. For example, they could have lost some tax benefits because of tax reform and lower tax rates didn’t make up for what they lost; or the withholding table changes in February 2018 increased their paychecks by too much; or a major life change ended up on their tax return, like having a kid turn 17 and consequently losing their child tax credit.

“For taxpayers who were surprised or disappointed by their tax outcome for tax year 2018, now is the time for them to make changes to their withholding for tax year 2019. Updating their W-4 can get them the outcome they want, whether that’s a larger refund or as much in their paychecks as possible without owing at tax time,” Ebel said.

But, there are some groups of taxpayers who were impacted in ways beyond the changing of the tax rates and tax brackets. Among the people who are in these categories are families and the self-employed.

Who can claim a shared dependent and who is an eligible dependent?

Questions about the dependent exemption (now eliminated as part of tax reform) and the child tax credit can arise when divorced or separated parents try to determine if the non-custodial parent can claim their shared children. Because the personal and dependent exemptions were eliminated with tax reform, divorced parents may want to reconsider who will claim dependent credits, if in the past they alternated annually between who claimed the exemptions and related child tax credits for their shared dependents.

For a dependent to be eligible to be claimed for the child tax credit (CTC), the dependent must have been under 17 on Dec. 31, 2018. Otherwise, the dependent is likely eligible for the new $500 credit for other dependents (ODC). If the custodial parent agrees to release the child’s exemption to the noncustodial parent, the noncustodial parent gets a $0 exemption but gets the CTC or ODC.  Also, the CTC increased from $1,000 to $2,000, but the amount awarded phases out for higher income taxpayers.

Why are my rental losses not deductible this year? Is it related to the qualified business income deduction?

Taxpayers who earn passive income from a rental property (e.g., via a rental management company) likely won’t be eligible for the qualified business income deduction, unlike those who are more closely involved with the day-to-day functions of managing a rental unit.

“While the safe harbor allowing some small-business owners to deduct 20 percent of their qualified business income extends the tax benefit, among the things all landlords will need to prove is that they spend some time working on the property, possibly at the level an Airbnb host would,” Ebel said.

In addition to these questions, many taxpayers with other concerns are confused about how tax reform is impacting them. Tax expertise is woven into the H&R Block Online products in the form of the DIY Online Help Center, which has been redesigned so clients can more easily find and navigate self-help options and get assistance from a seasoned tax expert if they choose. A new addition for online filers is Ask a Tax Pro, giving them unlimited, on demand access to a tax pro to answer questions via chat or screen sharing. Tax Pro Review is an option for online clients who complete their return and want to submit it to be reviewed, signed and filed by a tax pro – without the trip to the tax office.

Assisted clients who prefer not to go to a tax office can use Tax Pro Go, by uploading their tax documents and chatting with their tax pro via a secure portal while the tax pro prepares the tax return within five days.  Of course, clients who want to go to a tax office have 10,000 H&R Block locations from which to choose.

Taxpayers have multiple ways online to access H&R Block, including through the H&R Block apps, H&R Block Online products, downloaded H&R Block Software products or an appointment at an H&R Block retail tax office. To find the nearest H&R Block tax office, visit hrblock.com or call 800-HRBLOCK.

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Teresa L. Clark

Teresa L. Clark

Contributor

Teresa L. Clark came to H&R Block in January 2010 after working as a civil servant for more than 13 years. Since that first tax season she has written blog posts and talking points, edited content of all shapes and sizes, facilitated media interviews for the experts in The Tax Institute at H&R Block and supported the DIY team. Clark has a master's degree in integrated marketing communications from the University of Kansas and is a member of the Honor Society of Phi Kappa Phi.

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