With the holiday season fast approaching and 2018 coming to a close, it may be time to review your tax picture and make any necessary changes before year end. 2018 is the first tax year reflecting laws enacted by the Tax Cuts and Jobs Act of December 2017, so taxpayers may want to consult their accountants to review their tax plan and make necessary changes before 2019. Before reaching out to your accountant, there are three steps you can take to start getting your tax picture in order:
1. Review Your Employer Withholding
In August 2018, the Government Accountability Office reported that taxes for up to 30 million Americans (21% of all taxpayers) are being underwithheld by their employers. This means that you may be getting a larger paycheck, but would owe the IRS money at the tax filing deadline.
The IRS recommends that taxpayers use their withholding calculator to determine the correct amount of federal income tax that should be withheld from their paycheck. If you think you may be underwithheld, you should contact your accountant to discuss next steps.
2. Evaluate strategies to manage capital gains
Due to recent market volatility, you may have unrealized losses in your taxable investment accounts that could be used to offset 2018 taxes. Investors with significant capital gains can also consider deferring these gains by investing in Opportunity Zones – a new provision in the Tax Cuts and Jobs Act that offers a limited-time ability to defer and reduce tax due on gains by investing in certain geographically-designated areas. If you have realized gains in 2018, please contact our team to discuss if these strategies are right for you.
3. Switch from a tax preparer to a tax planner
As your assets grow and financial complexity increases, taxpayers may benefit from switching from a tax preparer (who simply prepares and files returns) to a tax planner (who understands your complete tax picture and can guide and advise you regarding tax-efficient decisions).
This is especially true given the myriad changes coming into effect for the 2018 tax year. These changes affect deductions and credits for qualified business income, state income tax, property tax, mortgage interest, and children and other dependents, among other changes. A call with your accountant can clarify how these changes may affect your tax situation and ensure that you maximize tax planning for the last two months of 2018.
If you are concerned about your tax picture and looking to connect with an accountant, please reach out to our wealth strategy team. We do not provide tax advice, but are happy to refer you to a qualified CPA who can help you understand your unique tax situation.