Accounting On Us
Oh no! Will I owe?
Tax liability strategies for 2018
Becky L. Barnett, EA, MBA
Picture this: it’s April 15 and you’re filing your tax return. Expecting that nice refund you get every year. EXCEPT this year is different. Instead of getting a refund, you now owe. What in the world could have happened? Well, let me tell you, there are a few things that can be done NOW that will help you avoid this situation come filing season.
Standard deduction changes
You may have been hearing all year that the standard deduction increased, and the tax rates have decreased. Great! That means you will automatically have less taxable income at a lower tax rate, right? Not so fast. There is always some give and take when it comes to tax law, and the Tax Cuts and Jobs Act of 2017 (TCJA) was no exception. For 2018, you will also be losing the personal exemptions.
Are you withholding enough?
The TCJA created a new set of withholding tables. For those of us that look at our paychecks on the regular, this means that your federal income tax withholdings were lowered in accordance with the new tables. Yay! So, you have been able to enjoy a little more take-home pay with your paycheck. But wait…what will this mean when it’s time to file your taxes in April? You guessed it! It very well could mean either a reduced refund OR that you may end up owing money.
Withholding calculator. Do NOT worry. You still have time to analyze things and make changes so that you are not caught off guard. The IRS has kindly provided a link to a withholding calculator on their website. To use this, you simply need a current pay stub and your prior year tax return. The calculator will walk you through a few questions and then tell you what to change your withholdings to. The more current information you can input in the calculator, the more accurate the results will be.
Talk to the professionals. You can also visit your friendly Henry+Horne tax advisor. We tax professionals love to run tax projections for you. This will help you readjust your withholdings. Depending on what you typically prefer – a refund, to break even or to owe just a little – your tax advisor should be able to get you in a real close ballpark of your desired outcome.
Form W-4. If you find out you are not withholding enough, now would be the perfect time to correct that situation. You will need to file a new Form W-4 with your employer. Filing an updated W-4 will adjust the withholdings on your paychecks and should get you closer to your anticipated tax bill.
According to the federal Government Accountability Office, one in five taxpayers will be under withheld on their taxes for 2018. That adds up to roughly 30 MILLION taxpayers. Don’t be that one in five who owe tax. Act now to save yourself some financial stress come April.