It’s a complex world, and with the huge overhaul of the tax code two years ago aimed at simplification, it seems to get more complicated. Are you able to navigate the new tax law and get the best benefit? Are you overpaying your taxes? Do you feel that there is something not being addressed when Tax Day comes? Here are some items to consider for 2020 and beyond.
Federal Tax Withholding
While the lower tax rates made headline news, behind the scenes the IRS decreased the amount of federal tax withheld from paychecks which was not widely publicized. Unfortunately, this resulted in many taxpayers owing more than they expected, getting less back than expected, or in some cases, owing money when they usually receive a refund. Heading into 2020, it would be advisable to speak with a tax advisor regarding adjustments to your withholding, so you are not surprised come tax time.
Tax Tip: A new 2020 W-4 form has been released. The form has a new look with revisions to determining withholding amounts. Although it is not required to update your W-4 form each year, it is highly recommended to fill out a new W-4 form for 2020 if a recent tax return resulted in an unexpected tax liability.
We also saw the demise of the 2% miscellaneous deduction on Schedule A. This was a big loss especially for salespeople and their mileage, employees who maintained home offices, or others who had unreimbursed business expenses from their employer. If this affects you, now is the time to sit down with your employer to discuss the implications of this change and work towards a remedy to compensate you for the lost deductions.
Qualified Business Income (QBI)
The Qualified Business Income deduction (QBI) was part of the recent changes made by the Tax Cuts and Jobs Act. Its aim is to eliminate the disparity between the 21% corporate tax rate and individual tax rate. This provides a special deduction for self-employed, small business owners, and real estate investors. The deduction can reduce the amount of your qualified business income by 20%. However, the rules for claiming the QBI deduction are complicated and many restrictions apply.
There are some great ways to maximize your QBI deduction to help you pay less tax. Being in the right entity or structure is imperative as well as how you structure payments to yourself. It is recommended that you work with a qualified tax professional who can help you get the most out of this important tax break. Maximization can be achieved with the right planning.
With all these changes in mind, speaking with your tax professional proactively is the best way to save money. If you find yourself needing assistance, please come and talk with one of our experienced and knowledgeable CPAs at James Russell, PLLC.