Like many taxpayers, if you’ve already filed your federal income taxes for 2018, you may be surprised to discover you’re not getting a refund this time. If so, this was almost certainly due to the sweeping tax overhaul made by the 2017 Tax Cut and Jobs Act (TCJA).
Since personal tax rates were lowered by the TCJA, it’s natural to assume you would owe less taxes, not more. But as you may have discovered, this isn’t always the case.
Seeing that the TCJA was promised to offer most people a tax break, understanding why you might owe more taxes in 2018 (rather than less) can be confusing. The following questions and answers are designed to shed some light on this situation, so you can start revising your tax strategies for coming years.
Q: What changed?
A: In addition to lowering personal income tax rates, the TCJA doubled the standard exemption to $12,000, added limits to deductions for state and local taxes (SALT), eliminated personal exemptions, set limits on deductions for home-mortgage interest, among many other changes.
Given all of the changes, you may find that you’re no longer withholding the proper amount of taxes from your paycheck and/or quarterly installments to the IRS. When filing, this can result in either overpaying your taxes (and getting a refund) or underpaying (and owing money).
Q: What does this mean for me?
A: In light of these new changes, you should carefully review your withholding and make adjustments if necessary. To help with this, the IRS published new withholding tables and updated its withholding calculator into which you can input your current tax data to see if you need to make any changes.
Q: How do I change my withholding?
A: If you work as an employee, you change your withholding by making adjustments to your W-4. If you work for yourself, you either increase or decrease your estimated quarterly payments.
A W-4 determines how much income tax is withheld from your pay by your employer. You fill out a W-4 when you start a new job, but you can change it at any time. Specifically, the form asks you for the number of allowances you want to claim based on personal factors, such as being married and/or having children and filing as head of household.
The more allowances you claim, the less federal income tax your employer will withhold, which translates to more money in your paycheck. The fewer allowances you claim, the more federal income tax your employer will withhold, lowering your take-home pay.
It’s important that you withhold the proper amount from your paycheck or make quarterly payments. Don’t withhold enough, and you’ll owe the IRS at the end of the year. Withhold too much, and you might get a big refund, but you’ve basically given the government an interest-free loan for that year.
Maximize your tax savings
Adjusting your withholding is just one of many strategies you can use to save on your taxes. Indeed, the TCJA also changed tax laws that have the potential to affect your estate planning strategies as well. In light of this, when the 2018 tax season wraps up, I’ll be happy to refer you to a few of my favorite local CPAs to bring you support and guidance that you can use to maximize your tax savings in 2019 and beyond.
As always, if there is anything I can do to support you or if you have any questions about your estate plan or need to set up a new estate plan, please contact my office at (858) 432-3923.
It’s that time of year
again: tax season. No one enjoys
doing their taxes, and that is likely why many
of us leave this tedious task to the last…possible…moment. As Tax Day
approaches, millions of Americans are likely scrambling to track down all of
their important documents to meet the April 15 deadline. But as with anything
in life, the more you rush, the more likely you are to make mistakes. When it comes to your taxes, these mistakes can result in
monetary penalties, delays in getting a refund, and even an increased chance of being audited. Below are four easily avoidable mistakes
people make at tax time.
- Not filing when you could get a refund: No matter what your income level, filing your taxes is important. This is particularly true if you are a low-income earner, as you may be entitled to a refund from the government through the earned income credit.
- Not taking advantage of professional advice: Our tax law is complicated. That’s why speaking with a tax professional can help ensure you are maximizing your tax refund or minimizing your tax bill. Whether it is itemizing expenses or taking advantage of tax credits, do not leave your taxes to chance. If you do not have a CPA, please contact me and I’ll be happy to make an introduction to a professional and qualified CPA.
- Not taking the time to organize paperwork: Getting all of your important documents together is not only important because it ensures you are properly filing your taxes, but it particularly comes in handy in the event you get audited by the IRS. Instead of doing this at the last minute, take the time to save documents throughout the year so you are ready when April 15 arrives.
- Not handling other “legal” matters: Since you are getting your financial house in order for tax season, it is a great opportunity to assess your other legal needs – like Estate Planning (also known as Legal Life Planning). Wills, Trusts, life insurance, healthcare proxies, and powers of attorney are just some of the valuable tools available to you. Planning for your incapacity and your family’s future when you are gone is just as critical, and leaving the results to chance can cause more stress on already grieving loved ones.
Getting ready for tax season is important, but so is Estate Planning. Do not leave this important task for later, as life is unpredictable. If you have questions about how to get started on your estate plan or need assistance updating an existing plan, contact Cheever Law, APC at 858-432-3923. I look forward to being of service to you.
In the first part of this series, I discussed the estate planning tools all unmarried couples should have in place. Here, we’ll look at the final two must-have planning tools.
Most people tend to view estate planning as something only married couples need to worry about. However, estate planning can be even more critical for those in committed relationships who are unmarried.
Because your relationship with one another is not legally recognized, if one of you becomes incapacitated or when one of you dies, not having any planning can have disastrous consequences. Your age, income level, and marital status makes no difference—every adult needs to have some fundamental planning strategies in place if you want to keep the people you love out of court and out of conflict.
Last week, I discussed Wills, Trusts, and Durable Powers of Attorney. Here, I’ll look at two more must-have estate planning tools, both of which are designed to protect your choices about the type of medical treatment you’d want if tragedy should strike.
3. Medical power of attorney (Advance Health Care Directive)
In addition to naming someone to manage your finances in the event of your incapacity, you also need to name someone who can make health-care decisions for you. If you want your partner to have any say in how your health care is handled during your incapacity, you should grant your partner medical power of attorney.
This gives your partner the ability to make health-care decisions for you if you’re incapacitated and unable to do so yourself. This is particularly important if you’re unmarried, seeing that your family could leave your partner totally out of the medical decision-making process, and even deny your him or her the right to visit you in the hospital.
Don’t forget to provide your partner with HIPAA authorization within the medical power of attorney, so he or she will have access to your medical records to make educated decisions about your care.
4. Living will
While medical power of attorney names who can make health-care decisions in the event of your incapacity, a living will explains how your care should be handled, particularly at the end of life. If you want your partner to have control over how your end-of-life care is managed, you should name them as your agent in a living will.
A living will explains how you’d like important medical decisions made, including if and when you want life support removed, whether you would want hydration and nutrition, and even what kind of food you want and who can visit you.
Without a valid living will, doctors will most likely rely entirely on the decisions of your family or the named medical power of attorney holder when determining what course of treatment to pursue. Without a living will, those choices may not be the choices you—or your partner—would want.
I can help
If you’re involved in a committed relationship—married or not—or you just want to make sure that the people you choose are making your most important life-and-death decisions, consult with me to put these essential estate planning tools in place.
With my help, I can support you in identifying the best planning strategies for your unique needs and situation. Contact me at 858-432-3923 today to get started with a Family Wealth Planning Session. I look forward to serving you.