There are many things that could leave you with a big surprise when tax time comes around. With all the new tax laws if you didn’t make the necessary changes to your withholdings you may end up with a tax bill instead of the tax refund you were expecting. Check the list below to see if any of the events pertain to you so that you have time to prepare for any surprises.
1.) You’re W-4. Did you see a change in your withholding tax in 2018? The IRS issued new withholding tax tables in February 2018 that affected your withholdings. It was determined by the U.S. Government Accountability Office (GAO) approximately 30 million taxpayers may not have had adequate taxes withheld in 2018. If you haven’t reviewed you tax withholding, it’s too late for your 2018 return but this would be a great time to take a look at them for your 2019 tax return.
2.) IRA withdrawals before 59 ½ years old. Sometimes you may find the need to dip into your retirement funds. What you should know is, there are big tax implications when you dip into these funds early. Implications such as:
* A 10% early withdrawal penalty.
* Withdrawals will be taxed at the highest rate.
* The withdrawals may put you in a higher income bracket or over the tax benefit phase-out level.
3.) You received a significant raise in 2018. That big raise may put you in a new tax rate, higher than your previous year due to the extra income. Did you change your withholdings?
4.) A second job. It's great having the extra income, but it could cause a big headache if you don’t plan ahead properly. Withholding rules start over for each job you hold. Not only will this extra income be taxed as ordinary income, but if it’s your personal business, it could also be subject to the self-employment tax of 15.3 %.
5.) A child turns 17. The Child Tax Credit is a huge tax benefit. You are no longer eligible for potential $2,000 tax credit in the year you child turns age 17. In addition, personal exemptions are no longer available.
6.) New standard and itemized deductions. The new standard deductions have nearly doubled. Single is now $12,000 and married filing jointly is $21,000 for 2018. The personal exemptions have been removed and many itemized deductions have also been eliminated or reduced. This may result in a surprise for taxpayers that expect a tax refund but instead, get a tax bill.
Though it may be too late for your 2018 tax return, it’s a good time to check your withholdings for your 2019 tax return. At Summit CPA we have multiple resources to assist you with your tax and financial needs. Contact our office at 866-497-9761 to schedule an appointment with our advisors.