Be thankful for what you have; you’ll end up having more. If you concentrate on what you don’t have, you will never, ever have enough. - Oprah Winfrey
Happy Thanksgiving everyone! All of us at Irvine Wealth Planning Strategies wish you and your family the best of the holiday season! For us, it is also the time of year we consider last minute tax strategies! Below, planner Kate Welker shares her thoughts about doing an Income Tax Check Up.
Oh, and if you missed it, be sure to listen to last week's Wine and Dime! There are some good nuggets in there and perhaps it will give you some suggestions on some wine to serve at your Thanksgiving gathering.
Income Tax Check Up
By Kate Welker
Fall is by far my favorite season. Sweater weather, crunchy leaves, and the thought of the holidays approaching. This is the time when we are thinking of making Thanksgiving plans and getting the Christmas shopping started, and it can be a very busy time. I can’t help but also think that right after the holidays we will be in the midst of the income tax filing season. Before the holiday schedule gets to busy I’d like to discuss the importance of scheduling in some time to do an income tax check in.
While I think reviewing your information every year is important, in light The Tax Cut and Jobs Act this year it is even more essential. The tax rate for many taxpayers will be lower, but there are many moving pieces to each individual situation that should be reviewed. By November you should have a fairly good record of your income for the year and your possible deductions. Looking at your information now will give you a window of time to make some changes before the year end if you need adjustments. Reach out to your tax professional, they would rather look at your projected return now than the last week of the year or run into a messy tax situation when it is too late to make changes. Following are some particular situations I would pay extra attention to.
Federal withholding
When the tax rates changed, so did the corresponding tax tables. If you have one job and filled out your W-4 correctly the withholding on your income should be sufficient. The situation I am most concerned about is a taxpayer who works more than one job at a time or married taxpayers. The W-4 gives your employer general information about your tax return, but that payroll is looking at your tax situation only in relation to that particular company. For example, if you make $60,000 a year as a married taxpayer your company’s payroll software is going to look at that as your total income for the year and internally figure you into the 12% tax bracket. If your spouse were also to make $60,000 you would (without significant deductions) actually be in the 22% tax bracket. If you are a single taxpayer and work two jobs, the same situation could apply. That is a 10% jump and could result in a balance due of several thousand dollars. To do a simple check in for this look at the combined year to date pay stubs of your household, estimate where you will be for year end, and review the tax withheld. If you are comfortable reading a tax table chart this will give you a good starting point. If not please reach out to an income tax professional who can give you more insight.
Unreimbursed Employee Expenses
This category of expenses was eliminated by the Tax Cuts and Jobs Act. These expenses are those that are incurred while working for an employer, generally if you receive a W-2 and have expenses you have deducted in the past will be impacted. Examples of expenses you may have been deducting include mileage, travel and lodging expenses, union dues, uniform, or tool expenses. Careers I see this impacting include construction, pipeline, truck drivers, police officers, and teachers. If these deductions were significant on your 2017 return you may need to make adjustments.
Itemized Deductions
The standard deduction for 2018 increases to $12,000 for a single taxpayer and $24,000 for married taxpayers from $6350/$12,700 in 2017. On a tax return you can choose to take a standard deduction or add up a list of itemized items and if that number is higher use that as your deduction. With the standard deduction higher and the tax deduction limited to $10,000 there will be less taxpayers itemizing in 2018.
Business Owners
There are unique opportunities for tax planning and savings for small businesses in 2018. There is a tax credit for qualified small businesses that could be a deduction of up to 20% of net income. Additionally as regulations on the expensing of repairs and maintenance change with bonus depreciation and Section 179 there are planning opportunities within your business to reduce your income tax.
The new tax law is complex and will change the way the tax return looks on many levels. There is no easy answer on how the Tax Cuts and Job Act will impact you, some taxpayers will pay reduced taxes and others will see an increase compared to previous years.
I don’t know know how your situation will look, but I’d rather you ask the questions now. Have you thought about your tax situation lately? I challenge you to take the time to check in.