Signed into law last December, the new Tax Cuts and Jobs Act made wholesale changes to the tax code. While you may be aware of many of these changes, you may not realize the full impact the law will have on your paycheck stub if you are employed, or on your income if you are self-employed. Here are a number of issues you should be aware of when it comes to anticipating your 2018 taxes owed.
Check Your Numbers
Some employed workers will owe less when tax season rolls around next spring. If you know you will be one of these people, you may want to have less money in taxes withheld from your paycheck. For example, if you now claim zero allowances, you may want to bump that up to one or two, depending on your eligibility. You can do so by filing a new W-4 Form.
Other working Americans will pay more in taxes. If that describes you, you should check your numbers to make sure you are deducting enough in taxes from each paycheck to cover what you will owe. If you are taking two allowances on your W-4 currently, you may want to reduce that to one or zero.
The Government Accountability Office (GAO) has estimated that 21 percent of taxpayers are projected to not withhold enough taxes this year, while 73 percent will likely withhold too much. How do you know now whether you are taking the right number of deductions? The IRS has devised new withholding tables for W-4 Forms and offers a Withholding Calculator that can help you perform a quick “paycheck checkup.”
Know Your Deductions
The new tax law eliminates personal exemptions and changes many of the deductions for individuals. For example, the tax code now sets limits on the amount of state and local taxes (commonly called SALT) you can deduct. Since the law doubles the standard deduction, many taxpayers who used to itemize their deductions every year will be better off if they simply take the standard deduction. If you aren’t sure, you may want to check the IRS credits and deductions for individuals.
Businesses are also faced with changes to what they can and cannot deduct as expenses on their tax forms. For a handy checklist of how to maximize your deductions, take a look at 1-800Accountant’s Tax Savings Calculator, which provides checklists of deductible expenses for many different industries.
Watch “Sharing Economy” Underpayments
If you work in the “sharing economy,” including ride sharing services, the IRS has issued guidance that suggests you make sure your employer is withholding taxes from your wages. If you are not working as an employee but as an independent contractor, you need to make sure that your withholding from another job is enough to cover your sharing economy income or, if not, that you pay quarterly estimated taxes on the extra income. See the IRS website for more information.