The Tax Cuts and Jobs Acts (TCJA) brought sweeping changes to both personal and corporate taxes. It is important to do a regular “paycheck checkup” to ensure that you are not withholding too little (or too much) in taxes. This is also a good time to take a look at the impact that the changes may have on your small business if you haven’t already done so.
For personal income tax, the TCJA made it necessary for the Treasury Department to release new federal tax withholding tables. However, it took a few months for the IRS to release a revised W-4 form, and these revised forms are a little more complicated than the previous version. Many taxpayers may not have complete a new one this year. While the TCJA is supposed to provide most people with a reduction in the amount of tax they will pay, some people may have circumstances that could result in a higher tax bill for 2018 and they may be in for a surprise come tax time.
These are just some of the circumstances that could warrant taking a closer look at your withholding based on the new tax withholding tables:
Two income families
Self-employed
An individual with multiple jobs
Change in marital status
Retirement
Pension income
High wealth and high income individuals
If you itemized deductions in 2017
The TCJA restricted many itemized deductions and limits the deduction taken for state and local property taxes to $10,000 combines. Those individuals who relied on itemized deductions to reduce their tax liability in past years will definitely want to look at this current year to see if they are on track.
In addition to the changes to personal income taxes, there have also been changes to the way that sole proprietors and pass-through entities are taxed. This is a perfect opportunity to determine whether or not you are structured the right way. With a change to a flat corporate tax rate of 21%, it is worthwhile to look at the numbers and see whether it is best to be taxed as a proprietorship, partnership, S Corp or C Corp.
The TCJA is major tax legislation and has brought big changes to both personal and corporate taxes. Call us if you need expert advice and guidance.