Q&A WITH SEAN REED
Typical refunds or taxes owed may be way off next year under new tax laws
Q: New tax laws took effect
Jan. 1. What issues need to be looked at now, not next tax season?
A: Those that jump out to me are, new tax brackets, new standard deductions, no more personal exemptions, eliminations of certain deductions on the Schedule
A, new and increased credits, and new withholdings from paychecks. If people aren’t on top of this, they’ll either get too big of refunds next tax season, meaning they make do with less in their paychecks this year, or they will owe more than they normally do.
Q: How will taxpayers be impacted, negatively or positively from these laws?
A: First off, the standard deduction nearly doubled while exemptions have been eliminated. For those who don’t usually itemize, that will mean less taxable income. For those who typically itemize, there’s a good chance they will have more taxable income. However, the new lower tax brackets often make up for the higher taxable income.
Q: In your opinion, who stands to benefit the most, and who stands to lose the most under this new tax law?
A: If you have children younger than 17, your Child Tax Credit has doubled from $1,000 to $2,000, in most cases this will way more than offset the loss of the exemption. Those who itemize $20,000 or more probably will see no real impact and maybe a small tax increase. The ones getting hit the hardest by this new law tend to be those who are W2 employees that deduct unreimbursed business expenses on their Schedule A. The section for “Job expenses and certain miscellaneous deductions” is now gone. This can be a huge tax increase for many.
Q: What issues do you see coming for which many may be unprepared?
A: If taxpayers aren’t paying attention, their refunds or amount owed might be off by a good percentage next tax season. Take the example of a taxpayer who saves $3,000 in taxes for the coming year. That’s great, but his withholdings have decreased $150 a paycheck or $3,900 ($150 times 26 paychecks). This taxpayer usually breaks even every year, but next tax season will owe nearly $1,000.
Q: What can taxpayers do for more efficient tax planning? A: I recommend taxpayers speak with an enrolled agent or certified public accountant. These tax professionals are the most capable to help taxpayers during this interesting year. For better tax planning, solutions may be as simple as having your employer withhold more from your paycheck.