We’ve had a lot of questions from clients about the impact of the Tax Cuts and Jobs act on normal, working Americans. IRS did a clumsy job with implementation, although in their defense the TCJA probably raised more questions than it answered. Also, one of the most surprising effects will be felt by taxpayers who live in high tax jurisdictions and who itemize their deductions.
A combination of factors may mean a higher bill.
Three things are conspiring against us to create a perfect storm of annoyance and large tax payments.
- First, IRS came out with new withholding tables that may have significantly under-withheld for a large part of 2018. The General Accounting Office says this snafu will have an impact on approximately 73% of US taxpayers.
- Second, Oregon is a jurisdiction with a relatively high personal income tax rate. In 2018, you can only deduct $10,000 state tax (income plus property) on your income tax return if you itemize. So, if you pay $8,000 in state income tax and have $5,000 in property taxes, you can’t deduct the full $13,000 on your Federal schedule A. You can only deduct $10,000.
- Finally, many of us did not adjust our exemptions on Form W-9 after the TCJA passed. While some folks will not be itemizing their deductions this year, due to the increase in the standard deduction, the combination of the first two factors may mean that you have a stiff bill to pay on April 15 (and not a moment sooner!!!!!).
We also wanted to encourage folks to reach out to their CPA early this year. Get your organizers completed and shoe box of receipts assembled early and to your tax preparer. We have heard from our friends who prepare personal income tax returns that the complexity of the 2018 tax season will mean that some shops don’t have enough people to do the work. If you wait too long, you may end up doing your return yourself! (I may be the only one out there who finds that entertaining).
Valerie Sasaki specializes in jurisdictional tax consulting, working closely with Fortune 50 companies involved in audits before the Oregon or Washington Departments of Revenue. She also works with business owners on tax, business, and estate planning issues in Oregon or Southwest Washington.