|Did you withhold enough money from your regular paychecks in 2018? If you withheld too little — or, didn’t pay enough estimated taxes if you’re self-employed — you could have an unpleasant surprise when you file your 2018 return.|
Tax Law Changes
The Tax Cuts and Jobs Act (TCJA) has made several significant changes to the tax rules for individuals for 2018 through 2025. As a result, many taxpayers who previously itemized deductions are expected to claim the standard deduction, starting in 2018.
Specifically, the TCJA:
Employers are required to withhold taxes from the paychecks of employees. Likewise, self-employed individuals and retirees and others with investment income or retirement account withdrawals must make quarterly estimated payments.
If you fail to comply with the requirements, you could be liable for an estimated tax underpayment penalty, in addition to the tax liability.
The due dates for the quarterly estimated payments for a tax year are:
These dates are adjusted for weekends and holidays.
You can avoid an estimated tax underpayment penalty using any one of these three safe harbor rules:
Senator Ron Wyden (D-OR) recently queried the IRS about possible penalty relief for underwithholding due to changes in the TCJA. Wyden cited a Government Accountability Office report that estimated that nearly 30 million taxpayers could be underwithheld in 2018. Although the IRS recommended throughout 2018 that taxpayers check their withholding, few actually went through the steps required on the IRS website to ensure they had paid in enough to fall within the IRS safe harbors.
Separately, the American Institute of CPAs (AICPA) and the National Conference of CPA Practitioners have asked the IRS to refrain from imposing underpayment and underwithholding penalties on taxpayers due to the TCJA. The AICPA specifically requested relief for taxpayers who are subject to the complex provisions of Section 965, which requires certain domestic shareholders to pay a transition tax on the untaxed foreign earnings of certain foreign corporations.
It’s unknown at this time whether these actions will result in any penalty relief for affected taxpayers.
Contact your tax professional to discuss your specific situation and what you can due to remedy any shortfalls to minimize any penalties and interest. Your tax advisor can help you sort through the provisions of the TCJA that will affect your tax situation and address other withholding objectives in the coming years.
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