summer check - in

We hope you've been enjoying summer! We wanted to interrupt your pool toy floating with just a quick  reminder that we're over half way through the year, not just any year, but the first year of the major tax reform under the Tax Cuts and Jobs Act.

As the name implies, the Tax Cuts and Jobs Act is supposed to cut taxes for 2018 and beyond... how much and for whom is up for debate. Tax rates for most brackets were decreased, deductions and credits were added while others were taken away. Basically, this "tax cut" is affecting everyone wildly differently. Most people will see ​some decrease in tax; however, we are finding that for many people, the decrease in tax is less than the decrease in withholding on each paycheck.

In an effort to stimulate the economy faster, Congress mandated a tax withholding adjustment to reflect everyone's huge tax breaks at the beginning of 2018, not at the end when you file (after the mid-term election).  You may have noticed that back in Jan/Feb, your take home pay got larger.  Some of you might have noticed a sizable change.  Some may not have noticed at all. But the tax tables did change and your employer started withholding a smaller percentage of each check for federal tax.

As everyone's actual tax break will be wildly different (based on household size, bracket, deductions, etc..), the blanket decrease in withholding percentage may not accurately reflect your actual tax savings. Many people are now under-withholding from their paychecks and--despite their "huuuge" tax cut--could end up owing in at year end.  

We've noticed that the demographic being hardest hit by this are dual income married couples. Employers are lowering both spouses' tax withholding by more than the joint tax break, resulting in possible negative outcome next April.

Many people with more than one employer are also seeing excess adjustment in withholding. Each job assumes a tax bracket on their single paystub, but when combined, the income is in a higher bracket than each job alone.

We suggest all taxpayers do a lil' tax withholding check up now so that you still have half of the year to increase your withholding if need be. For many, it's easier to [for example] get $200 less per check for the remaining 12 paychecks rather than get a surprise tax bill for $2400 next spring.

The IRS developed a Withholding Calculator here to help you avoid underpayment.  

If their "simple" tool is making your head spin, we are happy to help with this task as well. We just need your most recent pay stubs and a brief update on any other changes in income or deductions for 2018 vs. 2017. 

As much as we would love to offer this service complimentary, it does involve a fair amount of work on our end; we need to essentially mock up an entire tax return using next year's rules, so we do need to charge our consulting rate for this service. We estimate for most clients, it will require between 45-60 minutes at our normal rate of $75/hour.

Just email your accountant directly or upload paystubs to our online portal here followed by an email with notes on any other big changes to your income or deductions. We can email back an estimate of how things should look at year end and advice on any needed adjustments to your withholding. Or we're also available for in person consulting if you prefer (we'd still rather you send pay-stub and email in advance so we can prepare for the meeting).

As your ever watchful and concerned tax accountants, we encourage you to take a look at this sooner than later. Any needed adjustment to your net pay will be less painful if you have a longer string of checks within which to spread out the deficit!

Email us today at info@foxtaxservice.com or call us at 612-824-2829 if you need further instructions or to set up a meeting.

Then get back to that pool. It's hot outside!