The Tax Cuts and Jobs Act, which went into effect in January 2018, will make its full impact known at the end of this year as taxpayers calculate their tax burden under these new laws. Taxpayers who failed to recalculate what they’ll owe for their 2018 earnings may face a rude awakening when their tax bill comes due. However, there are several steps that taxpayers can take in the waning days of 2018 to help reduce their tax burden in the new year. Learn more below, and contact a seasoned Dallas tax attorney with any additional questions.
Failure to adjust withholding could result in large tax burden
2018 witnessed the first substantial update to the US tax code in many years. One of the changes that will affect the most taxpayers is the change to the standard deduction and elimination of the personal exemption, as well as a number of other deductions. The IRS announced at the start of the year that taxpayers should complete a revised W-4, a form which calculates the amount that should be withheld from every paycheck to cover the employee’s income tax obligation. However, a survey by H&R Block showed that only about one in five survey participants completed a new W-4 at the start of the year, meaning that many taxpayers, especially retirees, high-income earners with dependents, or those who itemize their tax return, likely did not have the correct amount of income tax withheld from their 2018 paychecks. In fact, the Government Accountability Office estimates that about 20% of all taxpayers will owe taxes in 2019 based on their 2018 earnings.
Potential ways to reduce your tax burden at the close of 2018
While there’s no way to adjust your withholding for 2018 earnings now, there may be steps you can take before the end of the year to reduce the amount you owe come tax time. Remember that everybody’s tax situation is unique, so don’t make any specific changes without considering your overall finance situation and perhaps first visiting with your accountant, tax preparer or tax attorney.
- Make an additional mortgage payment: If you’re still eligible to claim the mortgage interest deduction, then paying extra toward your mortgage before December 31 could save you a bit of money. Keep in mind, however, that the number of people who benefit from this deduction shrank with the changes to the tax law, so you may want to check with a tax specialist to find out if you still qualify.
- Pay more towards your retirement plan: If you haven’t already made sure that you’re contributing the amount that your employer will match in contributions to your 401(k), or even maxed out how much you can legally contribute to your retirement account, do so now.
- Ask for your year-end bonus to be deferred: Many people receive a bonus at the end of the year from their employer, but if you’re already worried about the taxes you’ll owe on the income you’ve already been paid in 2018, it might make more sense to receive that bonus in 2019 instead. Ask your employer if they can hold off paying you your bonus until January.
If you need seasoned legal help with a tax issue, such as unpaid back taxes or an audit, contact the professional, seasoned, and effective Tyler tax attorney at the Scammahorn Law Firm, PC for a consultation at 903-595-1000, with additional offices in Dallas.