Well, the initial tax filing deadline has passed for another year. As this filing season represented the first since the new tax law was in effect, the tax returns being prepared showed the results of these changes on each taxpayer. Based on the changes that were enacted, and depending on the specific circumstances of each taxpayer, the changes either had a net positive or negative effect on each taxpayer’s bottom line.
The new tax law changes represented a mixed bag as certain changes helped, and certain changes hurt taxpayers. The largest positive changes other than the lower ordinary income tax rates for all, in my opinion, were the increased child tax credit amount (including the higher income threshold to qualify for this credit) and the 20% qualified business income deduction (QBI) for business owners. If a taxpayer’s circumstances allowed them to take advantage of both these benefits, they certainly saw a large improvement to their bottom line on their 2018 tax returns. On the flip side, if a taxpayer was not in position to benefit from either of these new changes, they were likely to either have results similar to the prior year or even owe a bit more than before. Overall, however, it would appear that a large majority of taxpayers across the country benefited from the new tax law rather than being worse off as a result of the changes.
The higher standard deduction helped many taxpayers, although the loss of the personal exemption deduction often muted the benefit of the higher standard deduction. In many cases, our clients experienced a wash result between these two changes – the higher standard deduction and the personal exemption deduction lost.
The next question to be asked is – what adjustments should be made going forward for the remainder of 2019 and future years? The answer to that question will differ from taxpayer to taxpayer. If your 2018 tax return showed either a large refund or large balance due, and there were not any one-time 2018 transactions that caused that result, we typically would suggest that you adjust your wage withholding or estimated tax payments for the remainder of 2019. The goal is always to come as close as possible to break even for federal and state income tax liability each year. This avoids the government holding your funds unnecessarily (without interest) for several months or the pain of having to come up with a large sum to pay a large balance due when filing returns.
Please contact us if you have any questions about your 2018 tax results or whether you should make any adjustments to your 2019 withholding or estimated tax payments.
Mark J Weech, CPA