Back in December of 2017, there were major changes surrounding the tax code, specifically with the tax brackets. With these changes, you may have seen more money in your paycheck each month, and while this may be pleasing in the short-term, you may owe more than you think come tax time and end up owing the IRS rather than receiving a return. Because of this, taxpayers should be wary of what’s to come with their 2018 taxes.
The changes to the tax code were complicated, and most Americans were left unsure of how these new codes would affect their personal taxes. Some time later, and the codes are just as complex as they were before. Our own Greg Mahaffey, an experienced tax professional and former IRS agent, speaks about how the tax code may affect you.
Your Tax Return
They might have adjusted some tax brackets but, I think, what people are going to find when they go to file their 2018 taxes next year is that they will owe. The majority of the differences that we see is that people may find themselves being under withheld right now because of the new tax tables that came out.
What I suspect is that we are going to end up seeing a lot more people having to owe money to the IRS. The IRS could be busier than they ever have been because there is this new influx of tax-payers who have never had issues before, and they now might find themselves to be under withheld.
I encourage people to check their withholdings. Do a quick calculation to see if you could be in trouble come April 15th, 2019. If so, make the adjustments now. Pay either an estimated tax payment or have extra withholdings coming out now to prevent a potential disaster coming this time next year.
The True Amount You Will Owe
We have to remember that the personal deduction did double, but you lost your personal exemptions too. In that case, again, people are going to be hurting come this time next year.
You won’t be able to write-off your property taxes, so remember that one. Your itemizations are going to change as well. So, just because you see a doubling of the standard deduction, you have to keep in mind that you are losing your personal exemptions and a lot of other things as well.
If you think it was really a tax cut for you, guess again. Make sure you do the math, crunch the numbers, and really look at the details. You may come to find that you actually aren’t getting the tax cut you thought you were, and you don’t want to be shocked when you don’t receive a tax return and instead, owe the IRS money you may not have.
Steps to Take
The best thing to do is check with your HR department and see how many exemptions you are claiming. I would encourage everyone, if they are married and have two kids which means you can only claim for exemptions, to claim three. It is better to have a refund than it is to owe. Even though it’s tough for people to give the government more money throughout the year, it’s usually harder to have to owe a large sum come April 15th. Yes, you can apply for and get an installment agreement, but why go through all of the hassle with penalties and interest?
You should also consider renewing your W-4 at work. Even without any changes to the tax code, this is a good practice to do a couple of times a year just to make sure that nothing has changed in your life that isn’t reflected on your tax return.
If you are concerned about your 2018 tax return, or have tax problems to resolve before the tax date, contact the tax professionals at Levy Tax & Associates. Contact us at 1-800-TAX-LEVY or visit our website to learn more.