The 2018 tax year was the first full year impacted by the Tax Cuts and Jobs Act signed into law in the fall of 2017. Tax preparers all across the country saw a mixed bag of results. In many cases, tax refunds were lower than the prior year, or small tax refunds the prior year turned into tax being owed at filing time in 2018.
While there may be varying reasons for the change in refunds and amounts due, one of the biggest reasons for the difference was the fact that employers were instructed to withhold less tax from their employee’s paychecks in 2018. The purpose of this move was to allow more of employees hard-earned money to end up in their pockets throughout the year, rather than having the IRS hold that money for them until tax return filing season.
The key to navigating through the waters of confusion is for tax and accounting professionals to stay ahead of the game in educating their clients on the ins and outs of the tax law and, specifically, how it applies to them.
As we approach the final three months of 2019, it is important that tax professionals and taxpayers become proactive with tax planning as it relates to taxpayers’ specific tax situations.
Many of the changes in the law will continue in 2019 and for several more years, including the doubling of the standard deduction, which will be $24,400 for joint filers. Another key change that remains is lower tax rates, with the top marginal rate still being 37%, but more importantly, a shift in how much taxable income applies to those brackets. In 2019, the 10% bracket will apply to the first $19,400 of taxable income, an increase of $350 over 2018, whereas the 37% bracket will apply to taxable income that exceeds $612,350 for joint filers.
Regardless of where each of us falls in the tax liability spectrum, what is absolutely essential is staying proactive with a solid game plan for year-end tax planning so that taxpayers have better tax vision for 2020.
Please contact your tax preparer to set up a time to discuss year-end tax planning so that you have time to adjust accordingly and be prepared for what’s in store for you in the 2019 tax filing season.