If You Itemize Your Deductions, It's Time For A Checkup On Your Taxes
By: Kelly Phillips Erb - June 29, 2018
Did you itemize your deductions on a Schedule A last year? If so, the Internal Revenue Service (IRS) encourages you to do a quick checkup on your taxes. By plugging your current tax data into the withholding calculator on the IRS website, you can do a "paycheck checkup" and avoid any nasty surprises at year end.
Why the need for the checkup? There have been many changes as a result of tax reform. The Tax Cuts and Jobs Act, which was signed into law in 2017, mostly took effect for individual taxpayers beginning in the 2018 tax year. Significant changes to itemized deductions could affect your tax bill. Those changes include new tax rates, limits on the deductions for state and local taxes (SALT taxes), a cap on the amount that you can borrow for purposes of the home mortgage interest (you can find additional information about re-fis here), and exclusions for certain kinds of job-related expenses (like the home office deduction - more here).
In addition, the new law affects the way that sole proprietors and pass-through entities are taxed. Depending on your income level and occupation, some of your income might be subject to a deduction of up to 20% of business-related income (more on that here).
The IRS released new withholding tables in January of 2018 (you can see them here), and employers were instructed to use the 2018 withholding tables as soon as possible, but not later than February 15, 2018. But that doesn't mean that you're necessarily where you need to be when it comes to withholding. Remember that your employer only has access to certain of your tax information, such as your income and your form W-4. Your employer may not know about pieces of financial information - like which of your itemized deductions are affected by the new law or whether it's more beneficial to take the standard deduction now - that affect your tax bill.
You should complete a "paycheck checkup" as early as possible so that you can adjust your withholding now, if necessary. If you wait to make a change, you'll have a decision to make. Since the year is near half over, you'll need to make changes to your subsequent paychecks in order to equalize withholding for the year; if you don't make those changes, you could end up with an unexpected tax bill or penalty at tax time in 2019.
You can find the new withholding calculator on the IRS website here. To use the calculator, you'll need your most recent pay stub from work, as well as a completed copy of your 2017 tax return. For more on using the new withholding calculator, click here.
Remember, the new withholding rates will not affect your 2017 tax return (the one you filed in 2018). However, having a completed 2017 tax return is helpful when using the new withholding calculator. If you don't have your 2017 tax return, because, for example, you're on an extension, you can refer to your 2016 tax return but the results may not be as accurate.
It's important to understand that the withholding calculator does not request personally-identifiable information, such as your name, Social Security number, address or bank account numbers. Also, the IRS does not save or record the information entered on the calculator. Watch out for tax scams and as always, remember that the IRS does not send emails related to the withholding calculator or other tax information.
If you need to make a change to your withholding, you'll do so using a form W-4. You don't send the form W-4 to the IRS: You submit it to your employer. Your employer will adjust your withholding accordingly. For more on how to figure out your form W-4 under the new law, click here.
Article Source: Forbes
** Disclaimer Required by IRS Circular 230** Unless otherwise expressly approved in advance by the undersigned, any discussion of federal tax matters herein is not intended and cannot be used 1) to avoid penalties under the Federal tax laws, or 2) to promote, market or recommend to another party any transaction or tax-related matter addressed.