Summer Time Tax Check Up
I frequently recommend to my clients with complicated tax situations to do a summertime checkup to see if they are paying sufficient amounts through withholding or estimated payments in order to avoid a negative surprise at tax time. This year that activity is especially important because of the various changes made to the tax law last December. Because tax rates dropped for virtually everyone, nearly all wage earners are having less federal withholding from their pay than last year. However, not all taxpayers will see an overall reduction in their tax liability for 2018. Tax rates dropped and there are some new and expanded tax credits, but some deductions also went away. The standard deduction nearly doubled, exemption allowances were eliminated, the child credit was expanded and there is a new credit for all other dependents that don’t qualify for the child credit.
The IRS has a calculator available to help people in determining the correct number of withholding allowances to claim on their W-4 forms. I have heard various complaints about the limitations of this IRS tool, but it works well for fairly simple situations. If you have multiple sources of income or other factors that make it more difficult to estimate your tax liability, you probably should consult with a competent tax advisor such as an Enrolled Agent to help you with this task. Proper tax planning can avoid that negative surprise when you file your taxes next spring.
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