Tuesday August 21, 2018
Time for a 'Paycheck Checkup'
The passage of the Tax Cuts and Jobs Act (TCJA), brought many changes that will affect taxpayers. With the TCJA's higher standard deductions ($12,000 for single taxpayers and $24,000 for married couples filing jointly), many taxpayers will have lower taxable incomes in 2018.
The Withholding Calculator is an excellent way to estimate a taxpayer's appropriate withholding amounts for 2018. If an individual needs to make an adjustment, it is best to do so early in the year rather than during October or November. It would be difficult to make the change at a later date and have it reflect the correct amounts.
While many taxpayers will find their tax returns simplified due to the higher standard deductions, some taxpayers will still decide to itemize. Those who plan to itemize their deductions should consider four substantial tax law changes in 2018.
- State and Local Taxes (SALT) - The SALT deduction is limited to $10,000. Homeowners who live in states with substantial state income tax may have a property tax bill total over $10,000. In this case, your SALT deduction will be limited to $10,000.
- Home Mortgage Interest - The deduction for interest on a personal residence mortgage is generally limited to $1 million of debt for existing loans and $750,000 of debt on new loans.
- Miscellaneous Deductions - The TCJA repealed many deductions such as those for employee business expenses, investment expenses and tax preparation fees. Previously, most of these miscellaneous deductions were permitted if they were over 2% of adjusted gross income.
- Charitable Deductions - Gifts of cash are now deductible up to a limit that is 60% of adjusted gross income (the limit was 50% in prior years). Many CPAs are encouraging clients who desire to reduce taxes to increase their charitable deductions in 2018.
If you desire to change your withholding amounts, contact your employer and complete a new IRS Form W-4. Because the average 2017 tax year refund was $2,800, many individuals who plan to use the new higher standard deductions may choose to reduce withholding and increase monthly income.