Don't Be Shocked Next Tax Season, Review Your Tax Withholdings Now

The Tax Law and Jobs Act was passed at the end of 2017 that resulted in a number of changes in the tax code taking place starting in 2018.  Many of those adjustments created a pleasant surprise to W-2 employees. Paychecks were a little higher due to the lower tax brackets and the resulting tax withholding calculations. 

What might be more of shock to some of those employees is the tax liability they may owe when they file their taxes next year.  This is due to the fact that the withholding calculator that many employers use in determining what should be withheld for federal income taxes is based on the exemptions taken when you file your W-4 with your employer.  As our tax laws have been fairly consistent over the past three decades, individuals who see a fairly consistent income from year to year can usually expect their tax liability to be consistent. 

However, with the changes to the standard deduction and limitations on the state and local taxes, many individuals who previously itemized will no longer itemize going forward.  It is estimated that 90% of taxpayers will take the standard deduction in 2018.  

The other shift is that depending on the individuals withholding calculation, a taxpayer may see a savings in their total income tax but as their withholding was reduced each pay period, they end up with a large tax liability when they file their taxes. The result could be a fairly sizeable tax liability from the prior year.

To avoid this painful surprise next year, it is best to review your tax withholdings now so that you can adjust them and catch up on any shortage that is found. 

If you have any questions about tax planning, please feel free to contact Glick and Trostin, LLC at 312-346-8258. 

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