Jump Start Your Tax Filing – Do I Owe?

Posted on Thu, Jan 10, 2019 ©2018 Drucker & Scaccetti

Uncle_Sam-Taxes-resized-600By: Stacie Court, CPA, MST

 

2019 is here and the tax filing season is right around the corner (can you believe it?).  Numerous changes to the tax code have taken affect for 2018 returns and the big question on everyone’s mind is, “Will I have a balance due in April?”  We’re here to help you get a jump start on gathering your tax documents, become aware of changes that may impact your tax liability and help you answer that dreaded question as soon as possible so you can plan accordingly.    

 

Gathering & Organizing Tax Documents

As you receive tax-related documents electronically or via post mail, keep them organized and filed together in one place to save time and effort when it’s time to send to your tax advisor.  Get into the habit of organizing your tax documents and keeping them in the same place as previously filed tax returns so you will always know where to locate them.  Similarly keeping an email file for tax-related documents will help keep items you receive electronically organized.

 

Drucker & Scaccetti sends clients an annual tax organizer prior to the filing season.   This organizer shows amounts included on the taxpayers return for the previous year and can be used to determine what documents will be necessary for the current year filing. 

 

Tax Cuts and Jobs Act (TCJA)

Beginning with the 2018 tax year, the TCJA reformed the tax brackets and reduced tax rates for most individual taxpayers.  These changes lowered tax rates at many income levels, meaning some taxpayers will pay less tax for 2018.  The following table shows the new brackets. 

 

2018 Rates

Single

Married Filing Jointly and Surviving Spouses

Heads of Household

Married Filing Separately

10%

$0 - $9,525

$0 - $19,050

$0 - $13,600

$0 - $9,525

12%

$9,526 - $38,700

$19,051 - $77,400

$13,601 - $51,800

$9,526 - $38,700

22%

$38,701 – $82,500

$77,401 - $165,000

$51,801 - $82,500

$38,701 - $82,500

24%

$82,501 – 157,500

$165,001 - $315,000

$82,501 - $157,500

$82,501 - $157,500

32%

$157,501 -$200,000

$315,001 - $400,000

$157,501 - $200,000

$157,501 - $200,000

35%

$200,001 -$500,000

$400,001 - $600,000

$200,001 - $500,000

$200,001 - $300,000

37%

$500,001 +

$600,001 +

$500,001 +

$300,001 +

  

Other changes included in the TCJA:

  • An increase in the standard deduction for all filers. The amounts are $12,000 for single or married filing separately; $24,000 for married filing jointly or qualifying widows or widowers; and $18,000 for heads of household. 
  • Taxpayers can no longer claim a personal exemption deduction for themselves, their spouses, or their dependents.
  • The child tax credit increases from $1,000 to $2,000 per qualifying child.  
  • Changes to itemized deductions:
    • Unreimbursed medical expenses that exceed 7.5% of adjusted gross income can be deducted
    • State, local, sales and property tax deduction limited to $10,000 ($5,000 for married filing separate)
    • The deduction limitation for interest on home mortgage debt has been lowered from $1,000,000 to $750,000 for new home purchases or refinanced mortgages. Existing mortgages prior to the TCJA were grandfathered.
    • The limit on charitable cash contributions has increased from 50% to 60% of adjusted gross income
    • Miscellaneous itemized deductions are no longer deductible

Caution

The corner where tax rates meet tax withholding changes can be problematic.  Come April, some taxpayers may find they owe the IRS more than expected, and here’s how. 

 

The IRS made changes to income tax withholding tables in response to the TCJA, resulting in many taxpayers’ withholding going down.  The new withholding tables are designed to calculate the correct amount of withholding for taxpayers with simple tax situations.  Taxpayers with more complex tax returns may not have enough income tax withheld from their paychecks. 

 

Worse still, mandatory withholding on bonuses, which often is too low for higher-earning taxpayers, decreased in 2018, likely causing many taxpayers to be under withheld.  These taxpayers may have noticed more money in each paycheck in 2018 but even with reduced tax rates, that could mean a smaller refund or even an unexpected tax bill when filing 2018 tax returns.

 

Many taxpayers will see reduced tax liabilities on their 2018 tax returns; however, you may owe more than prior years due to the decreased withholding.  If your income is similar to prior years, it is likely that your total tax for the year will be lower if you are in lower tax brackets.  However, those in higher tax brackets, especially those who live in high-income states or have high miscellaneous itemized deductions, may see an increase in their overall federal tax liability.

 

Every tax situation is unique and should be reviewed to minimize the impact of the changes to the tax law. The Tax Warriors® at Drucker & Scaccetti are on top of the changes and have the knowledge and experience to assist.   Call on us. We are here to help. 

Topics: Payroll Withholding, Withholding, Tax Cuts and Jobs Act of 2017, 2018 tax brackets, organizing tax documents, tax liability, child tax credit

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