Will Your Federal Withholding Be Enough?
With the new tax law in effect for 2018, the news has been about tax breaks, higher standard deductions, and lower tax brackets in 2018. There have also been reports about the withholdings for workers dropping so they have more in their paychecks. This is all good news, however we have noticed that the new withholding tables may be reducing your withholding too much.
The new tax law has many advantages for taxpayers (lower rates, higher standard deduction, more child tax credit, etc.). However it also has some disadvantages (cap of state taxes at $10,000 and loss of dependent exemptions, among others).
We are noticing with some of our clients that the disadvantages are outweighing the advantages and their tax liability in 2018 is either going to be about the same as last year, or in some cases, a little more. The withholding tables your employer uses do not know your personal situation. Due to this, your withholding may be dropping by more than your tax liability decrease.
If your withholding is set up to account for a number of dependents and itemized deductions that no longer exist, you could be under-withheld in 2018 and may owe money this time next year or have a smaller refund. If you feel that you may be in this category, it might be worth adjusting your withholding exemptions on your W-4 down by 1 or 2 exemptions.
We will be taking a cursory, high level look at our clients as we prepare their taxes, but if you have specific concerns and would like to discuss more, please contact us.
State Withholding May Be Of Concern As Well
State withholding may be of concern as well. State standard deductions (currently) are a lot smaller than the new federal standard deduction. In addition, many states require you to take the standard deduction on the state return if you took the standard deduction on the federal return. You cannot choose to itemize on the state return if you took the standard on the federal return.
Due to the new law, we have many clients who may be taking the standard deduction on the federal return, but will be penalized at the state level because they will be required to also take the standard deduction on the state return.
For example, a married couple will get a $24,000 federal standard deduction in 2018 if their itemized deductions would have been $20,000. However, if they are Kansas residents, they would then be required to take the state standard deduction, which is currently $10,300 (an almost $10,000 drop in deductions at the state level). This may lead to more state taxes.
If your itemized deductions are close to the standard deduction at the federal level, this scenario may impact you. We think it might be worth adjusting your withholding exemptions on your state W-4 down by 1 or 2 exemptions.
We will be taking a cursory, high level look at our clients as we prepare their taxes, but if you have specific concerns and would like to discuss more, please contact us.
Upcoming Deadlines
Monday, February 12, 2018
File Forms 940, 941, 943, 944 and/or 945 if you timely deposited all required payments
Wednesday, February 28, 2018 File Forms 1096 with accompanying 1099-MISC with tax authorities if filing paper; electronically filed forms due April 2 (except for nonemployee comp which is due January 31)
Applicable Large Employers – File paper Forms 1094-C and 1095-C; all other providers file paper Forms 1094-B and 1095-B with the IRS (electronically filed forms may be submitted by April 2)
Thursday, March 15, 2018 S Corps – File Form 1120S for calendar year, pay any taxes due, and provide K-1 to each shareholder (unless requesting an extension)
Partnerships – File Form 1065 for calendar year and provide K-1 to each partner/member (unless requesting an extension)
Extensions for S Corps and partnerships are due. Any payments would also be due to avoid interest and penalties. Extensions are valid through September 17, 2018.
Cornerstone Weekend Hours
StartFragmentStarting Saturday, February 17th, Cornerstone's doors will be open from 9:00 – 12:00 if you have items to drop-off or pick-up, etc. These weekend hours will be available through April 14th. EndFragment
