Jun 01, 2018
By Tim Terry, Partner and Founder at Terry Lockridge & Dunn/World Trend Financial
Each April Joe and I had the same conversation:
“Joe, you need to have Rockwell reduce your tax withholding. Every year you get a refund of almost $4,000. You are making an interest free loan to the government.”
“Ok Tim. That makes sense.”
Finally, one year Joe looked at me and said: “Tim, I know you are just trying to help, but I count on that big refund to pay off my bills and summer trip.”
“Why don’t you put it aside each month?”
“I’ve tried, but it doesn’t work. Besides, I really like getting a big refund.”
Unfortunately, thanks to a congressional “rush” to provide taxpayers with more take home pay, an unpleasant surprise awaits many taxpayers next year.
Tax withholding tables were adjusted in January to immediately give the benefits of the new tax law. Many who were smiling in January may be shell shocked next April when they have to pay the IRS.
Our preliminary analysis describes several groups of taxpayers who are especially vulnerable to an unpleasant surprise. Those potentially impacted include the following:
- Belong to a two-income family
- Work two or more jobs or only work for part of the year
- Have children and claim credits such as the Child Tax Credit
- Have older dependents, including children age 17 or older
- Itemized deductions on their 2017 tax returns
- Earn high incomes and have more complex tax returns
Due to the potential consequences of not having enough tax withheld, we recommend taxpayers do a reality check. Compare this year’s withholdings with 2017. If it is substantially less, you should carefully review your taxes for 2018. This is especially the case if you fall into the above examples.
Some of our clients have requested we do a mid-year review. In many cases, we have advised an immediate adjustment to their tax withholding. In one case, we discovered they would be $4,000 underwater!
If you wish to avail yourself of this service, please call your tax accountant. Our rates for these services begin at $100. The complexity of your situation will influence the total cost to provide this service. Contact the accountants in our Cedar Rapids office at 319-364-2945 or Iowa City at 319-339-4884.
As always, we are here to help you navigate the challenges of the new tax laws.