You know, in general (in marketing terms) I get a pretty good “open” response on the e-mails I send to clients. But that response is often 50-60% which means that many of you aren’t opening or reading my e-mails (and maybe aren’t reading this blog either). In any case, every summer I offer clients a free “withholding checkup” via e-mail to ensure that they are withholding enough to cover their potential tax bills come April 15th. Usually only a handful take me up on this offer.
The passage of the Tax Cuts & Jobs Act (TCJA) late in 2017 resulted in a tax cut for many taxpayers. This tax cut caused the withholding tables to be adjusted in February 2018. So most wage earners were seeing more money in their paychecks because less was being withheld for federal income tax. In Summer 2018, the IRS realized that many taxpayers were going to be under withheld and they started a huge information campaign encouraging taxpayers to check their withholding using a withholding calculator that they developed. Unfortunately, as is common with “things IRS”, the cure is worse than the disease. You practically had to do your 2018 tax return to figure out if your withholding is on target. So, if you couldn’t figure out the IRS tool, and you didn’t ask your #taxpro for help, then you may be under withheld and you may have a much smaller refund, a balance due, or a much bigger balance due than you are expecting when you file your 2018 taxes.
The IRS finally realized that most taxpayers don’t pay attention to their taxes except during tax season and has decided to waive the penalty for underpayment of taxes…but of course there is fine print. Typically you are assessed a penalty if you don’t pay in at least 90% of the tax due (this figure is higher for higher income individuals). They have reduced that to 85% for this year. That is good news for all of the taxpayers who “missed the memo” and who end up underpaying their 2018 tax because of the new laws and the new withholding tables. Of course it doesn’t help you pay that balance due that you weren’t expecting or the bills that you were going to pay with your now much smaller refund.
Helping clients “dial in” their withholding and estimated tax payments is part of what I do when I prepare a tax return. It’s included with return preparation as is a mid-year withholding check up. If you’re wondering why you should pay a #taxpro to do your taxes, this is just one of many reasons. We think about this stuff year round so you don’t have to! And we help you avoid “nasty surprises.”