We would like to extend our sincere thanks to each of you for your continued referrals!
Also, and as a reminder for those who have not filed yet, the extended 2017 due dates are the following:
- S corporations and partnerships: September 17, 2018.
- Individuals and C corporations: October 15, 2018.
Feel free to send your information to us early so we have plenty of time to finalize and file!
Adjusting Your Withholding
Two-income families, taxpayers working multiple jobs and those working abroad should check their withholding throughout the year.
The passage of the Tax Cuts and Jobs Act, which will affect 2018 tax returns that people file in 2019, makes checking withholding amounts even more important. These tax law changes include:
- Increased standard deduction
- Eliminated personal exemptions
- Increased Child Tax Credit
- Limited or discontinued certain deductions
- Changes to the tax rates and brackets
Individuals with more complex tax profiles (i.e. two incomes, multiple jobs, foreign income) may be more vulnerable to being under-withheld or over-withheld following these major law changes. The IRS encourages a “paycheck checkup” as early as possible to help taxpayers check if they are having the correct amount withheld for their personal financial situations.
If a taxpayer needs to adjust their paycheck withholding amount, doing so earlier provides more time to absorb a shortfall evenly over the course of the remainder of year. Conversely, delaying an adjustment will have a bigger effect on each remaining paycheck.
The IRS withholding calculator (https://apps.irs.gov/app/withholdingcalculator/) is the easiest, most accurate way for taxpayers with these complicated tax situations to determine their correct withholding amount. The tool allows users to enter income from multiple jobs or from two employed spouses. It also ensures that these taxpayers apply their 2018 tax deductions, adjustments and credits only once – rather than multiple times with different employers.
The calculator will recommend how to complete a new Form W-4 for any or all of their employers, if needed. If a couple or taxpayer is at risk of being under-withheld, the calculator will recommend an additional amount of tax withholding for each job. Taxpayers can enter these amounts on their respective Forms W-4.
To use the withholding calculator, taxpayers should have their 2017 tax returns and most recent paystubs available.
The calculator doesn’t request personally identifiable information, such as name, social security number, address or bank account numbers. The IRS does not save or record information entered in the calculator.
Withholding Calculator results depend on the accuracy of information entered. Taxpayers whose personal circumstances change during the year should return to the calculator to check whether their withholding should be adjusted.
Adjusting Federal Withholding
Employees who need to complete a new Form W-4 should submit it to their employers as soon as possible.
As a general rule, the fewer withholding allowances an employee enters on Form W-4, the higher their tax withholding. Entering “0” or “1” on line 5 of the W-4 means more tax withheld. Entering a larger number means less tax withholding, resulting in a smaller tax refund or potentially a tax bill or penalty.
We do caution about claiming exempt during the year, particularly if a client is doing so in anticipation of claiming the foreign earned income exclusion because if, for any reason, the client becomes unable to qualify to make the claim, a large and unexpected tax bill will be the result. In addition, depending on total income, the foreign tax credit may not cover all tax due at the end of the year.
What About State Withholding?
Depending on your tax profile, your withholding allowances may be the same or different for state purposes compared to federal. Most states allow the foreign earned income exclusion while just a few states allow the foreign tax credit.
If you have specific questions about your federal or state withholding, please contact us.
Thank you! We look forward to serving you again in the future!