Do you need to adjust your withholding?
In response to the Tax Cuts and Jobs Act, the IRS has updated its withholding tables, which may have significant implications on your tax return. In light of these recent tax changes, now is the right time to revisit your federal tax withholding. Kris Giannetti, CPA, gives her thoughts on how to navigate these new tax realities.
To address the major changes enacted by the new tax law, the IRS made large adjustments to its tax withholdings tables. In the short-term, this may feel like a win for many individual taxpayers. This is because these adjustments are causing an increase in their take-home pay. However, this influx of cash might come at the expense of an unexpected tax liability.
The other side of the equation is receiving a large refund at tax time. While that may seem like a good thing, in reality, over-withholding is akin to providing the government with an interest-free loan.
A common misconception that I run across is the notion that once withholding declarations are made, they’re set in stone. This is not the case at all. Employees can file a new W-4 form with their employer to update their withholdings at any time.
The general approach I suggest to most clients is to owe only a small amount at tax time. The goal is to limit a large tax liability, while at the same time, avoiding withholding too much tax throughout the year. Even though we’re already in June, it’s still not too late to make changes that will help you at tax time. For instance, if you were under or over withheld in the first half of the year, it’s possible to make adjustments to get your withholding in line with your expected tax liability. It’s really about finding the right balance.
That’s where 415 Group provides real value for our clients. On top of working with you to make the proper withholding adjustments, we provide accurate tax projections based on your specific tax situation. By looking at your position as a whole, we’re able to understand your needs and deliver the most tax advantageous results.