The tax law passed late last year included numerous changes that we have written about in our blogs that will have wide impacts across the Country. Specifically, there is a likely jump in the numbers of Americans who’ll owe taxes when they file 2018 returns, so it may be time to re-think your tax planning. Going back to last Christmas, we received the gift of the new tax law and most commentary revolved around whether to prepay real estate taxes before 12/31/17. We think it is important to loop back around and remind everyone of the tax law’s limitation and/or elimination of many itemized deductions. If you itemized in the past, this year is a year that you might want to prepare a projection of your tax liability in anticipation of year end.
We don’t recall ever before that the Government Accountability Office (GAO) issued a report warning that more than 4.5 million taxpayers will likely come up short next April, unless they act now to adjust their withholding amounts. So, if you are one of those roughly 28 million who are expected to have changes in the amounts you claim, you are at risk. If you have thousands lying around in the bank to pay those taxes then you don’t need to be concerned, we worry about those who don’t. In a perfect world, it probably should not be this way, that is that the withholding taxes were adjusted in 2018 for the new tax law and yet the GOA coming out and saying a mistake might have been made.
There are a few areas that have the most potential to contribute to this aspect. These are: the new limits on state and local tax deductions (the SALT deductions), a restriction on the amount you can deduct for home mortgage interest and to some extent the elimination of the deduction for job-related expenses.
The GAO looked most closely at those who itemize deductions and provided more clarity as to who is at risk. They seem to be specifically warning married taxpayers who itemize deductions, with two children under age 17, income exceeding $180,000 from one or more jobs and who have $20,000 or more in non-wage income (dividends, interest or capital gains) as the ones most likely to have to pay additional tax when they file in April.
The recommendation is to plan now to minimize the check writing later. One helpful tax planning tool is the IRS’s Withholding Calculator (which is on the IRS website) which can be utilized to do your “checkup” and it should only take a few minutes. The calculator will ask for your estimated values for your income in 2018, (use 2017 adjusted for any changes that you know of such as raises), your number of dependents, as well as estimated itemized deductions (remember to update for the new Tax law limits) plus the amount of federal tax withheld on your last paycheck.
If your get results that indicate you’ll owe tax when you file, realize that estimates were used, the limits may work out differently and it’s not over until the Tax return is prepared. If you see a large balance due, the first step is to start putting aside more Tax money now. You can use your bank or allow Uncle Sam to hold your money by increasing the amount of tax withheld from your pay for the rest of this year by revising your W-4 form. You’ll need to figure the number of additional allowances you need, which can be tough with only months to go. As a rule, when you reduce the number of allowances you claim, your employer will withhold more federal income tax. The question may be whether changes made now will need to be revised in 2019.
Get off the list of those who will owe taxes (without money to pay them) by knowing what your tax situation is now. This is important because having too little money withheld could result in an unexpected tax bill or even a penalty when you file your 2018 return. By making tax planning adjustments now, you’ll still have some time to make any necessary adjustments.
Whether you are a business, individual, or non-profit – we will outline specific steps you can take to minimize taxes, maximize loan eligibility, or enhance the value of your property. With one call or email we will provide you with a professional, complimentary financial statement evaluation – no obligation. Just visit Czarbeer.com/offer or contact us at firstname.lastname@example.org, or call (212) 397-2970 and we will be happy to help you and answer your questions.