With tax preparation in full season before the April 15th filing deadline, taxpayers might be shocked by the bottom line on their tax return. Our MoneyMan Paul Fain, president of Asset Planning Corporation, joins us now with some tax advice for your personal financial plan.
IN GENERAL, DO MOST TAXPAYERS UNDER- OR OVER-WITHHOLD INCOME TAXES IN A GIVEN YEAR?
On average, more than 70 percent of Americans receive money back from the IRS. Last year, the average refund was more than $2,890. So that is what most people are expecting this year!
WHAT SHOULD WE EXPECT FOR THIS TAX SEASON – SINCE A NEW TAX LAW WENT INTO EFFECT IN 2018!
This season some taxpayers could be in for a big surprise. New survey data shows the “vast majority” of people did not change their W-4 elections last year. That is problematic because the sweeping law changed everything from personal exemptions to the standard deduction.
DOES THAT MEAN THAT REFUNDS COULD BE SMALLER, OR OTHERS MIGHT EVEN OWE MONEY?
Quite possibly! According to a simulation conducted by the Government Accountability Office (GAO):
- 6% accurately withheld: 6% percent of taxpayers are expected to have wages accurately withheld, (paid what is owed);
- 21% under-withheld: 21% of workers are at risk of having their taxes under-withheld. These individuals would be stuck with a bill instead of a refund check come April.
- 73% over-withheld: 73% are likely to have their taxes over-withheld (= refund).
WHAT HAPPENS IF YOU DID UNDER-PAY YOUR TAX LIABILITY?
- 90% of the amount owed: During any given year, taxpayers can avoid the underpayment penalty if they paid withholding and estimated tax of at least 90 percent of the amount owed.
- Penalty Waiver: Good News this year, the IRS will waive a penalty for taxpayers whose total withholding and estimated tax payments are at least 85 percent of the taxes they owe.
- Bottom Line: check your W-4 withholding rates for 2019: The IRS urges taxpayers to check their withholding rates.
FAST MARKET FACT
This past month was the best January for the U.S. stock market (+8%) since 1987 (32 years)! A good January is usually an indicator of a positive year ahead.
QUESTION FOR OUR MONEYMAN?
Send them to Paul@assetplanningcorp.com!
You can also reach Paul by using the contact page on APC’s website.