New York, NY—Small business owners who don’t understand the new tax law may be in for a painful filing season come spring, says an AP article in the Antelope Valley Press. Changes in the new tax laws enacted a year ago are significant and complex, and business owners are urgently advised to meet with their tax professionals as soon as possible.
“[Business owners] look just at the [tax] brackets and think, ‘The brackets went down, by default the amount I’ll pay will go down,’” said financial planner Chris Jackson in the article.
Not necessarily so, he warns. Key questions to consider now are whether to claim the new small business deduction, whether it’s better to incorporate, and what entertainment deductions are still in effect.
To read the entire article, click here.
Separately, experts also warn that the new tax rules may result in many Americans getting an unpleasant surprise tax bill next April. While tax rates went down for most individuals—and take-home pay edged up correspondingly—the new rules changed allowable deductions.
With the changes, old withholding formulas became obsolete, but many companies didn’t have time to change their payroll withholding deductions before the new laws went into effect. Individuals who are still having the same amounts withheld as before the laws changed may suddenly find out it’s not enough, and that could translate into a tax bill instead of the refund they’ve been used to getting.
How to avoid it? Businesses should meet with their tax professionals to review their withholding formulas, and employees should perform a withholding audit to make sure enough is being deducted to cover their entire tax liability and/or ensure a refund next year. Although too late for 2018 taxes, an early withholding audit can help avoid the same surprise for 2019—and at least give employees a few months’ warning to budget for a tax bill in April if it looks like they’ll be hit with one.