Tax Tips: Q&A with Finance Assistant Professor Michael Killey
With tax season upon us, Accounting and Finance Professor Michael Killey shared some of his insights or tips on individual tax filing.
No one likes talking taxes. Well, no one except Michael Killey. The College of Business assistant professor is the type of guy who doesn’t mind his friends knowing he’s a finance-focused professional with a graduate degree in taxation this time of year.
But the spark behind the accounting and finance faculty member’s drive for this staple of American life — something Benjamin Franklin called one of life’s certainties — isn’t about the potential of a return. It’s not really about money at all. It’s the way it shapes and reflects on our society’s values.
“Taxes affect more than our wallets. It can have an impact on what we do. What’s valued in society can find its way into the tax code and what’s put into the tax code influences our behavior.” His examples include the federal First-Time Home Buyer Credit, a 2008 credit to entice first-time buyers to invest in homestead properties during the mortgage crisis (the housing market is now stable and the credit no longer exists). Or getting a tax credit — the Saver’s Credit — for contributing toward a Roth IRA or employer-sponsored retirement plan, which encourages people to save for the future (still in existence because, on average, Americans aren’t saving enough).
We caught up with Killey during this busy tax season to ask him — now that the reform dust has begun to settle after the passing of the Tax Cut and Jobs Act of 2017, which took effective Jan. 1, 2018 and biggest change to the tax code in 30-plus years — if he had any individual tax filing tips or insights.
For students, what is something good to know at tax time?
You can still claim a standard deduction for yourself even if you are considered someone else’s dependent. If you earn less than $12,200 — many of our students work part time and do make less than this — you technically don’t have to file. But if you do, you can get back the income tax that you’ve paid for the year. This isn’t new, but it’s something many students tell me that they didn’t know and wished they did sooner.
There’s also a wonderful IRS program done through volunteers— many volunteer coordinators are members from our campus — called VITA (Volunteer Income Tax Assistance). As long as your taxable income is $54,000 or less, you can have your taxes prepared for free. It’s a national program and there are several locations around the Detroit area.
With the tax overhaul, what is a behavior change by individual tax filers that you’ve seen as a result?
Charitable giving. With the higher standard deduction, people aren’t itemizing as often. Because of this, they are bundling their donations — which means they give a lot in one year and not as much in the next. This allows a person to still give, but not as evenly as before. That way they are able to itemize in the years where they do give so they can get the maximum tax benefits available. It hasn’t been great for nonprofits, but it’s understandable why taxpayers are doing this.
What’s something every taxpayer should do?
Plan for the future. Check out the tax tables and a withholding estimator to make sure you or your employer is withholding enough from your check. Not withholding enough took quite a few people by surprise during the 2019 tax season. Here’s the IRS calculator for 2020 taxes, which you’d file in 2021.
Now that we’ve had a couple years to adjust to the TCJA, what is the biggest benefit you’ve seen?
Simplifying taxes for most people. Because of the TCJA, more people take the standard deduction. This is good for the average American — less record keeping and lower filing fees. It’s also good for the IRS, which has struggled in the past to hire enough people to keep up with tax returns. Now that the vast majority is choosing to take the standard deduction, things are simplified on both ends. That’s a win-win.
If you had to pick the biggest loser when it comes to the overhaul, what would it be?
Our nation’s budget. [For the federal government’s fiscal year 2019 — the 12-month period ending on Sept. 30, 2019 —, total receipts were $3.462 trillion, according to the Congressional Budget Office. That was up by $130 billion, or 3.9 percent, compared to fiscal year 2018.]
Students are surprised when I tell them this, but if we look at our nation’s tax and spending history, the top federal income tax rate was at 91 percent following World War II. It’s when we paid for things and didn’t accumulate large amounts of debt we couldn’t repay. Since the tax rate cuts that started in the 1980s, we’ve accumulated more and more debt and even had to borrow from our Social Security Trust Fund, a highly valued program in our society.
Debt is not always a bad thing and currently we, as a country, have the credit and assets to back the debt we have. However, if there is a recession or crash — which some financial analysts are predicting — there are economic concerns. We are underfunded and reducing tax bracket percentages adds to this. We all like the idea of paying less money, but at what expense?
Then again, people have been predicting an economic slowdown for years and it hasn’t happened. Maybe I shouldn’t be concerned, but I can’t help it. I’m a numbers guy and there is definitely a problem with the math.
What about changes you’d like to see?
Recognizing that the people of today are more transient than in the past. It’s common knowledge that people no longer stay at one job for their entire career. [The median number of years that wage and salary workers have worked for their current employer is 4.2 years, according to an Economic News Release from the Bureau of Labor Statistics.]
We live in a society that values flexibility, but the tax code encourages permanence. There are deductions tied to housing, but not rent. And moving expenses for job relocation are no longer tax-deductible. It was removed with the TCJA (there are some exceptions for Armed Forces) , which can put the burden on businesses to foot the relocation costs or may discourage a candidate on taking a job opportunity. There are many benefits to home ownership and community, so I’m not discouraging those. But to reflect the way we work — which is how we pay taxes — changes should be considered. We’ll see what the future brings.