A multitude of changes were made in the tax code under the Tax Cuts and Jobs Act. This was the first year taxpayers filed their tax returns under the new law. Even with the IRS introducing the new IRS Withholding Calculator where taxpayers can check how much to withhold from a paycheck, many are struggling to make sense of the tax changes and how they impact their taxes.
Along with the overhauling of the tax code, many changes were brought about; the standard deduction was raised, personal exemptions came to an end, and many itemized deductions were removed. If you couldn’t make the best use of tax benefits in your 2018 tax return, stay ahead of the changes this year with these tax tips by CNBC:
“‘The first thing to figure out is did you have a tax liability problem? Or did you have a withholding problem? Was it losing the ability to itemize?’ asked Jeffrey Porter, CPA and founder of Porter & Associates in Huntington, West Virginia.
A decrease in liability alone isn’t necessarily a guarantee you won’t owe the IRS in the spring. For instance, if your tax liability went down in 2018, yet you also significantly didn’t withhold enough that year, you may end up owing. In this case, your taxes went down and money you would have otherwise paid the IRS went into your paycheck – enough that you underpaid Uncle Sam last year and now owe.
State and local taxes also play a large part in whether your tax liability has gone down or not. Since the state and local income tax deduction now has a cap of $10,000 ($5,000 if married filing separately), taxpayers paying more than that cap in personal property taxes, income taxes or general sales taxes cannot write the SALT deduction off on their federal returns. However, there are ways to reduce your tax liability this year. CNBC explains how:
Consider these four steps to do better next time.
Prepare in advance:
Consult your CPA now and draw up a plan to make 2019 less painful. ‘If the outcome wasn’t better, can we do things differently?’ asked Porter. ‘Clients are more interested in hearing that now.’
Look at your withholding:
If you failed to withhold enough tax in 2018, you’re set to be in the same position for 2019 unless you do something about it. Whether you’re a former itemizer, a W-2 employee with side-gig income, or a household with dependents, it’s worth reviewing your tax withholding. This also applies to retirees who get their income from many sources: Use Form W-4V to withhold from your Social Security check and Form W-4P to withhold from your pension.
Examine tax-friendly opportunities at work:
Saving in your 401(k) and contributing to your health savings account gives you two benefits: lower taxable income and a shot at retirement security. Here’s another tax play at work: A dependent care flexible spending account allows you to put away up to $5,000 on a pretax basis to pay for care if you have kids under age 13.
Plan your charitable giving:
If the higher standard deduction kept you from itemizing this year, talk to your CPA about bunching your charitable contributions so you can hit the hurdle next year. ‘Bunching’ allows you to cram in two or more years’ of charitable giving into one year. This way, you itemize deductions every other year.”