Taxes are like vehicles, in that they sometimes need a check-up to make sure they are performing as expected. That is especially true for 2018, with all the changes brought about by tax reform.
One area of major concern is the amount of taxes individuals are withholding from their wages. Tax reform was passed late in 2017, and there was a considerable amount of confusion among employers related to the amount of taxes to withhold in 2018. It took the IRS a couple of months to come out with a revised Form W-4 (Employee's Withholding Allowance Certificate) and withholding tables, and even then, there were concerns about whether the revised and more complicated W-4s were being filled out correctly by employees and whether the revised W-4s were being submitted to employers at all. The IRS has even been issuing notices cautioning taxpayers to be sure they are withholding enough.
While most people will see an overall tax reduction because of the tax reform, the amount of their refund or tax due hinges on the amount of pre-payments, which include withholding and estimated tax payments. All this confusion related to withholding can lead to unpleasant surprises at tax time. If you count on a refund each year, it might be appropriate to have this office run a mid-year tax projection to ensure that the projected refund will be as expected.
This is also true for retirees receiving pensions and Social Security benefits and for self-employed taxpayers who are making pre-payments via estimated taxes. You obviously do not want to pay too much and generally don’t want to end up with a huge tax liability. A mid-year check-up will allow adjustments to the 3rd- and 4th-quarter estimated tax payments so that the result will be as desired.
Married couples with two working spouses, individuals with multiple jobs and situations in which taxpayers are both wage earners and self-employed cause the most difficulty in getting the prepayments correct.
There are several other circumstances that can impact your taxes, and you probably should not wait until tax time to see the results. You could even be missing opportunities to decrease your prepayments and obtain more cash flow. With mid-year tax planning, you may be able to take steps to mitigate the tax impact of certain events and thus avoid unpleasant surprises before it is too late to address them. Here are some events that can significantly impact your tax liability:
If you anticipate or have already encountered any of the above events or conditions, it may be appropriate to consult with us, preferably before the event and before the end of the year.
Through the end of July, we are offering a free tax projection for all new clients. Contact us today to schedule your appointment.