The Moment of Truth For Your Taxes
We are getting to the moment of truth on the 2017 Tax Cuts and Jobs Act, which took effect for the tax year 2018. As the first tax returns reflecting the new tax rules are being filed now, we will all soon find out how it impacts us.
What are the changes? For details see: https://www.usgovconnect.com/what-the-2018-tax-changes-mean-for-you
Here is a summary:
- Higher Standard Deductions – increase to $24,000 for married filing jointly and increase to $12,000 for single filers which leads to fewer taxpayers filing itemized returns
- Lower Tax Brackets
- State and Local Tax (SALT) Exemptions Limited to $10,000
- Mortgage Interest – the higher standard deduction will replace the mortgage interest deduction for many people
- Higher Child Tax Credits – increases from $1,000 per child to $2,000 per child
The statistics so far from the IRS show that fewer people have filed returns and the IRS has processed fewer returns (probably impacted by the government shutdown) than in recent years at this time. Fewer people are visiting the IRS website, www.irs.gov that has a host of resources for taxpayers to use, with tools and instructions on every detail of the tax laws.
More information from the IRS reports the typical tax returns are SMALLER than last year! How could that be with the higher standard deduction and the lower tax brackets? Here’s the explanation. In early 2018, the IRS offered guidance to employers about how to change tax withholding from paychecks to reflect the impact of the new tax cuts. Part of the benefit of the tax cut was to get more money into the hands of consumers and into the economy. This reduced the amount of taxes withheld and resulted in a bigger paycheck for most people. Many taxpayers have already received their tax cut in the form of higher tax home pay during 2018 and won’t see a big tax return.
The sooner you know how your tax withholding worked with your tax return, the better for you. If you don’t like what you see, you can make a change in your future 2019 payroll withholding by filing a new W-4 with your employer. The sooner you know about your 2018 taxes, the sooner you can make the needed changes for 2019. It won’t change the amount you owe Uncle Sam, but you can decide if you want to pay a little more every paycheck to avoid a surprise payment in April 2020 and a penalty.
On the other hand, if you receive a large tax return, you may want to reduce your payroll withholding, since you are letting Uncle Sam use your tax money without any benefit to you, other than a future tax refund.
An important word of caution – This is not a good year to file a tax extension, as you are moving blindly into the future and delaying your moment of truth.
Don’t delay – file your taxes as soon as possible and course correct as needed.