Assess your tax situation now to avoid a surprise in the spring
Major tax reform will have a noticeable impact on virtually all taxpayers this year. Will your total paycheck withholdings at the end of the year line up with the new changes? Here are a few of the major changes and why it might be a good idea to see if your withholdings will be adaquate to cover your tax obligation.
Key tax reform changes
- There are no longer any personal exemptions.
- The standard deduction increased to $12,000 for individuals and $24,000 for married couples.
- The Child Tax Credit doubled to $2,000 per eligible child.
- Limits have been added to deductions for state income, property and sales taxes.
- Many itemized deductions are gone. This includes miscellaneous itemized deductions for investment fees, employee business expenses, and more.
Your paycheck withholdings might not be sufficient
You may have noticed a change in your tax withholdings earlier in the year due to these changes. These withholding changes were dictated by the IRS to employers in early February. While the IRS does its best to apply the tax law changes to the withholding tables, it’s not able to correctly estimate every individual tax situation. Even new W-4 forms used by employees to adjust withholdings is filled with rough estimates of the impact of these new rules. According to a recent announcement by the U.S. Government Accountability Office (GAO), as many as 30 million taxpayers may not have adaquate withholdings for 2018.
If you have not already done so, now is a great time to forecast your upcoming tax liability. Doing some tax planning this summer gives you time to adjust your withholdings if needed and possibly make estimated tax payments. An accurate forecast can provide you with the peace of mind that there will be few, if any, large tax surprises this year.