After filing tax returns, many people put taxes far out of their mind. However, taxpayers who received a large tax refund this year should think about taxes again…and the sooner the better. The IRS urges these taxpayers to visit the Withholding Calculator on IRS.gov and do a “paycheck checkup.” Doing so will help them make sure their employers are withholding the correct amount of taxes from their paychecks.
Most taxpayers receive refunds averaging around $2,800. Taxpayers who receive large refunds could receive more of their money throughout the rest of this year, rather than waiting until they file their tax return next year.
The Tax Cuts and Jobs Act was passed last year, and it included many tax law changes. Taxpayers who calculate their tax payments throughout the year in order to receive a refund at tax time should check to see how the new tax law affects them. A “paycheck checkup” can help taxpayers apply the new law changes to their situation.
Here are some of the changes that affect taxpayers who received a refund this year, but also many other people:
The calculator can help navigate each tax situation to make sure the amount withheld best fits the need of every taxpayer. It can help taxpayers decide if getting more money in each paycheck could make more financial sense than getting a refund at tax time next year. Adjusting withholding amounts now can also prevent having too little tax withheld, resulting in an unexpected tax bill next year.
For information about how to use the calculator and how to change withholding, taxpayers can check out the IRS Tax Reform Tax Tips on IRS.gov.
Taxpayers may also need to determine if they should make adjustments to their state or local withholding. They can contact their state’s department of revenue to learn more.
Monday, October 15, 2018, is the extension deadline for most taxpayers who requested an extra six months to file their 2017 tax return.
For taxpayers who have not yet filed, here are a few tips to keep in mind about the extension deadline and taxes:
What taxpayers can do when a letter arrives this summer
Some taxpayers will receive a letter from the IRS this summer. Taxpayers should not panic and remember that they have fundamental rights when interacting with the agency. Forward copies of any letters to your tax preparer and they can often help you navigate your options and requirements.
These rights are in the Taxpayer Bill of Rights. Among other things, these rights dictate that letters from the IRS must include:
Taxpayers who receive a letter from the IRS can do some simple things when it arrives. Taxpayers should remember to:
Source: Tax Preparation Costs and Fees
The costs associated with professional tax preparation can be considerable, depending on how much assistance you need. However, using a tax preparation service does give you the advantage of having a tax professional point out the various tax credits and tax deductions you are eligible for. Additionally, you may even have the extra benefit of being able to deduct the tax preparation fees themselves.
Recently, the National Society of Accountants (NSA) conducted a survey which showed that the average cost of professional tax preparation is $261. This is price that most tax preparers will charge for a 1040 Tax Form with itemized deductions (Schedule A) plus a state tax return.
On the other hand, the cost of getting a simple 1040 Form (without itemized deductions) prepared by a professional averages around $152.
The NSA survey also looked at the average costs of having a professional prepare various other types of tax forms, and found the following information:
While the cost of tax preparation may not sound appealing, keep in mind that a professional tax preparer can often catch credits or deductions that you may have missed — saving you money that can pay for the cost of the tax preparation! Additionally, you should consider the time it would take to prepare your income tax return yourself. Just having to read through the instructions and understand all the IRS rules can take you hours! For a lot of people, this alone makes the cost of professional tax preparation worthwhile.
Finally, remember that certain taxpayers qualify to use the IRS Free File system. If your Adjusted Gross Income (AGI) is $58,000 or less, you can file your Federal income tax return using a participating Free File Alliance company. (See the IRS website for a list of approved companies.) Keep in mind, each participating company has its own requirements and not all taxpayers may be eligible for all companies.
As we all know, we have a new <income> tax plan – at least until 2026. The new plan has many changes that will affect how we prepare for “tax time”. Paying less tax should be a concern for everyone. I just want to throw out there that some folks are not aware of the payroll taxes they contribute to like to social security and medicare.
In the year 2018, the employer’s portion of the FICA tax is 7.65% (the Social Security tax of 6.2% plus the Medicare tax of 1.45%) on each employee’s first $128,400 of salary and wages. On each employee’s salary and wages in excess of $128,400 the employer’s portion is the Medicare tax of 1.45%. You, the employee, also pays 7.65% of the first $128,400. In my humble opinion the percentages should be decreased and the amount of income taxed should be expanded. As the owner of my small business I pay both portions so that’s 15.3% – just for employment taxes.
Quick reminder on the taxes we pay. . . before monies can be diverted to budgeting expenses like housing, food, transportation, health care, etc.
In a news release, IRS has encouraged taxpayers who have typically itemized their deductions to use the withholding calculator on IRS’s website to perform a “payroll checkup,” noting that changes made by the Tax Cuts and Jobs Act (TCJA; P.L. 115-97 , 12/22/2017) may warrant an adjustment.
Changes made by the TCJA. The TCJA made a number of law changes, effective for tax years beginning after 2017 and before 2026, that affect the amount of itemized deductions that can be claimed and whether taxpayers choose to itemize or claim the standard deduction.
These changes include:
• nearly doubling standard deductions;
• limiting the deductions for state and local taxes;
•limiting the deduction for home mortgage interest in certain cases; and
•eliminating deductions for employee business expenses, tax preparation fees and investment expenses, including investment management fees, safe deposit box fees and investment expenses from pass-through entities.
In light of these changes, some individuals who formerly itemized may now find it more beneficial to take the standard deduction, which could affect how much a taxpayer needs to have their employer withhold from their pay. Also, even those who continue to itemize deductions should check their withholding because of TCJA changes. IRS warned that having too little tax withheld could result in an unexpected
tax bill or penalty at tax time in 2019, and also noted that taxpayers who have too much tax withheld may prefer to receive more in their paychecks instead of in the form of a tax refund.
IRS encourages payroll checkup. IRS is urging taxpayers to perform a “paycheck checkup” and to do so as early as possible so that if a withholding amount adjustment is necessary, there’s more time for withholding to take place evenly throughout the year. IRS cautioned that waiting means there are fewer pay periods to make the tax changes – which could have a bigger impact on each paycheck. Using the withholding calculator. When taxpayers use the withholding calculator (available at http://www.irs.gov/individuals/irs-withholding-calculator), they can indicate whether they are taking the standard deduction or itemizing their deductions. If they are itemizing, they’ll enter estimates of their deductions. The withholding calculator applies the new law to these amounts when figuring the user’s
IRS encourages taxpayers to have their 2017 tax return when using the withholding calculator, as well as their most recent pay stubs. IRS also noted that if a taxpayer’s personal circumstances change during the year, they should re-calculate their withholding at that time.
Adjusting withholding. Employees who need to complete a new Form W-4, Employee’s Withholding Allowance Certificate, should submit it to their employers as soon as possible. Employees with a change in personal circumstances that reduce the number of withholding allowances must submit a new Form W-4 with corrected withholding allowances to their employer within 10 days of the change.
References: For withholding on wages, see FTC 2d/FIN ¶ H-4220 ; United States Tax Reporter ¶
P.S. If you receive refunds at tax time (not a balance due to the IRS/State) then your return is not “DUE” on the deadline of April 15-18. The week of the the 15th, extensions and returns with balances due take priority. At least in my office.