By Roy Ice
Tax season has come and gone.
As I look back over the past few months, clients have had a lot of questions as they struggle to get familiar with this strange new world under the Tax Cuts and Jobs Act. The tax forms are different, the tax rates are different, credits have expired and new deductions have been created; the new tax law inspired quite a few consultations as clients picked up and reviewed their returns. Overall, the new tax law lowered the tax bill for many of our clients, yet some were left with without the warm feeling of a bigger tax refund making its way to their bank accounts.
If you want to feel like you have a little more control over your tax planning next year, here are a few tips.
Adjust your witholding
Talk to your employer about adjusting your federal income tax withholding. Lower withholding was largely responsible for lower refunds this year. You can change the amount of taxes withheld from your pay by filling out a new Form W-4. You can always elect to withhold more than the calculated amount (e.g. an additional $50 per paycheck).
Reimbursed expense plan
Consider talking to your employer about a reimbursed expense plan. Many employees were surprised to learn that their mileage, tools and moving expenses were no longer deductible in 2018. If you are in the market for a new job or negotiating pay for your current job, it would be a good idea to ask how out-of-pocket expenses related to your job will be handled going forward. Reimbursements are deductible for your employer and also are excluded from your income.
If you are self-employed, business expenses and mileage are still deductible, but there are other tax planning areas to consider. It is a great time to talk about how the new tax law affects the type of business that you own. Corporations, partnerships, and sole-proprietors have all been affected by the TCJA and are treated differently when tax is calculated. Talk to your advisor about which tax entity makes the most sense for your situation.
Don’t forget about contributions to a traditional IRA, Health Savings Account (HSA), employer 401(k), or SEP accounts if you are self-employed. Contributions to any of these accounts can help to manage and smooth out your income from year to year for tax purposes — all while saving for your future.
For Indiana taxpayers, you can also contribute to a 529 college savings plan which offers attractive tax credits. You can transfer cash and immediately pay a bill for college tuition, books, or other qualified education expense and enjoy the savings. 529 plans now allow you to pay for K-12 education expenses as well.
The most important tip is to start planning early and revisit your tax plan throughout the year to make sure that your assumptions are holding up. If you need to make estimated tax payments, visit your local CPA to help you calculate a payment and avoid any surprises next year.