What is perfect tax planning when it comes to tax returns?
- March 13, 2019
- By: Michael Hoeflinger
It’s that time of year again when millions of Americans file their tax returns before the deadline, hoping for a tax refund of some sort. But is that really the best strategy from a financial planning standpoint? The best tax planning is to have a tax balance of zero when it’s time to file, which means you would neither owe anything nor receive a refund. This would indicate that you paid exactly the amount of tax liability owed for that particular year.
This tax season will be different for filers under the Tax Cuts and Jobs Act that went into effect in 2018. Some of the major changes from the new law include a higher standard deduction ($12,000 for single filers and $24,000 for married persons filing jointly), the elimination of personal exemptions, new limits placed on itemized deductions and a new $10,000 cap on state and local deductions. The law also changed the higher standard deduction for the elderly, the blind and those with a disability. Furthermore, the IRS and Treasury department released new withholding tables, which means that the guidelines your employer follows in order to deduct the appropriate amount of income tax from your paycheck have changed.
20172018-2025 Standard Deductions
- Single $6,350 $12,000
- Married filing jointly $12,700 $24,000
- Elderly or blind(single and not a surviving spouse) Add’l $1,550 Add’l $1,600
- Elderly(both over age 65 and married filing jointly Add’l $2,500 Add’l $2,600
- Personal exemption $4,050 per family member - Eliminated
What can you do if you are surprised after filing your 2018 tax return? First, take a look at your tax withholding from your employer and think about what you can do to adjust it. This could be as simple as reviewing your W-4 form with your employer alongside the withholding tables to help best determine your income tax load. For example, if you claim too many allowances on your W-4, your employer will withhold less tax from your paycheck, but you may owe the following year. If you claim zero allowances, you may overpay and get a refund come tax time, but you will take home less pay per month as a result of the taxes. If you need less of your income to be taxed, make sure you are contributing more to your employer’s retirement plan as well as any other tax-sheltered accounts (assuming you are not already at the maximum allowed). If you are a 1099 employee, you may need to evaluate how much you are paying in taxes each quarter to make sure you get the liability just right.
Tax planning is a critical component of your overall financial planning, and making the necessary adjustments along the way will help you over both the short and long term.
Feel free to contact Michael Hoeflinger with any questions by phone 305.448.8882 ext. 241 or email: [email protected].
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