Dec 20, 2018
Tax expert Jeff Socha says make sure you get a head start on
preparing your taxes this month. The new year is upon us. Make
it a good one and spend the rest of this year preparing for tax
2018 was the first year under the Tax Cuts and Jobs Act, the largest revamping of tax law in decades, which was passed last December. The new rules stressed out many Americans, some of whom did not know if it would benefit or harm them come Tax Day. (The new tax law kept the seven federal tax brackets, but lowered rates for six of them, for 2018 to 2025).
Without proper preparation, taxpayers might be in for a bad surprise. They could possibly owe more in taxes than they thought — unaware of that liability until the deadline — or they could miss potential ways to get a higher deduction and therefore, risk paying more than necessary.
See: How the new tax law affects every age — from babies to boomers
Here are five things you can do between now and Dec. 31 to prepare:
Calculate your tax liabilities
The new tax law increased many Americans’ paychecks, but that came with consequences. More than 30 million taxpayers could owe the government money next year, according to a Government Accountability Office report. More than one fifth of Americans (21%) could be “underwithheld,” meaning that their employers haven’t taken enough money out of their paychecks to cover their taxes.
It’s too late for Americans to make any meaningful changes to their paycheck withholding amounts for the coming Tax Day in April 2019, said Christina Taylor, senior manager of tax operations at Credit Karma. But there are two tasks they can do now to help themselves: estimate how much they’ll owe in taxes next year using the Internal Revenue Service’s W4 calculator, and adjust their allowances for the following year.
Workers choose how much money they want withheld from their paychecks to cover taxes — the lower the number of allowances, the more money that gets withheld (whereas the higher the number of allowances, the less money withheld, which means a larger paycheck but also a bigger potential tax bill).
By inputting a few factors, such as income, taxes already withheld and the number of allowances, the IRS calculator will estimate how much you owe in federal taxes. If the amount is a lot higher than you thought it would be, you could start putting aside money now to cover the taxes you’ll owe in April. Workers may want to adjust their allowances now so they can start fresh in 2019, and lessen their tax liabilities for the following year if they were underwithheld.