Articles

Check Your Check…

In Accounting & Finances, Business, Taxes on September 17, 2018 by Sufen Wang

Check Your Check: Avoid Tax Filing Surprises by Reviewing Your Withholding Now

Some surprises are great, like when a shirt rings up below the ticket price, or when your cat sneaks onto the sofa and purrs against your cheek.  Other surprises – not so great, like when your cat leaves you a mangled “gift” on the doorstep, or you get an unexpected tax bill or penalty when you file your 2018 income tax return.

While there’s no sure way to encourage good surprises in life, you can definitely avoid some bad ones. For example, if you’re a taxpayer with high income, a complex return, or someone who gets wages and also pays quarterly estimated taxes for self-employment, it’s a very very good idea check your withholding numbers NOW, in late-summer 2018, to avoid an unforeseen bill when you go to file in 2019.

This is especially important because “The Tax Cuts and Jobs Act” passed back in December of 2017 made some pretty big changes to the tax laws. A few of these include:

• Increasing the standard deduction (For 2018, it almost doubled to $24,000 for joint filers and $12,000 for single filers).
• Removing personal exemptions
• Limiting/discontinuing some deductions. For example—A $10,000 cap on deductions for state and local property, sales and income taxes;
• Changing tax rates and tax brackets

All in all, many taxpayers who itemized in days of yore might find out they’ll pay less tax in 2018 by taking the standard deduction. The key phrase here is “might find out” – it will literally pay off to know your numbers now to avert major complications when you file next year. Just give your paycheck a quick checkup to verify your withholding is in good health. For this DIY review, you’ll need just three things:

• The IRS’s Withholding Calculator
• Your completed 2017 tax return for estimates
• Your most recent paystub

Following the calculator’s guidelines, check that you’re having the right amount of tax taken out of your pay. If your withholding is wonky, you should look into adjusting it ASAP by submitting a new Form W-4 to your employer. The longer you wait, the fewer pay periods you’ll have to withhold the correct amount, which means you’ll shell out a bigger chunk of change on each remaining paycheck. And if your withholding isn’t enough and you don’t make any adjustments this year, you’ll end up shelling out an even bigger chunk of change come tax return filing time.

Even if your withholding looks A-OK today, a change in your personal circumstances could shake things up before the year ends. For example, if you get a raise (yay you!) you should re-check your withholding. And if you do end up adjusting your withholding in mid-2018, you’re gonna’ wanna’ check it again come New Year’s, to make sure it’s still hunky dory for the full-year of 2019.

The IRS’s Withholding Calculator works fine for folks with simpler tax situations, but those of you out there with more elaborate stuff going on will want to take things to the next level with IRS Publication 505, Tax Withholding and Estimated Tax. For example, if you get non-wage income, such as capital gains, Pub. 505 will be your go-to info source. While it’s not as easy-breezy as the calculator, you do get worksheets and examples to help guide you through the maze of complex withholding.

Of course, while the Withholding Calculator and Publication 505 are helpful, but they can’t answer all of your tax-planning questions. If you need specific advice about the new tax laws and how they’ll affect your personal situation, get in contact with your friendly neighborhood tax professional. In the meantime, you can read more about withholding at http://www.irs.gov/withholding, and also get a head-start on prepping for next year’s taxes with IRS.gov/getready.

Remember, it pays off to expect the unexpected, especially with the ripple effects of new tax legislation likely to cause big waves in the filing season.

Sufen Wang, M.S. Accountancy
http://www.sufenwang.com
Wang Solutions, Long Beach, CA (562) 856-0793
Editor: Hannah Huff, M.F.A. Creative Writing: Poetry, (626) 806-5805

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