When your 2018 tax returns were completed this past tax season, did those words (or worse) come out of your mouth when you saw the results? Since I’m a CPA and I live and breathe taxes every day (and this is my blog), I can brag that my 2018 federal balance due was $105 and my Virginia balance due was $90. That’s just about as good as it gets when it comes to tax return results (pretty much a break-even), but then again, I monitor my numbers/taxes throughout the year, and adjust my tax payments accordingly. For those of you who aren’t tax professionals or don’t normally run numbers during the year, this past season was an ugly reminder of the need to do just that (e.g. tax planning). The “new tax law” and changes to the tax withholding tables that went into effect at the beginning of 2018 caught a lot of people with their figurative pants down, and I wound up having to tell way too many people this past tax season that they owed thousands (or tens of thousands) of dollars on their return. I think this happened for a couple of reasons. The first one is that none of my new clients this past tax season had me as their tax professional in 2018 (obviously, since they were new this year). As such, they weren’t on my client list during 2018, when I sent out multiple e-blasts with information about the tax law and the change to the withholding tables. I also mentioned that even IRS (who came up with the withholding tables) suggested that taxpayers crunch some numbers, as it appeared there was an inherent error/shortage in the tables that could create underpayments. If the new clients didn’t read about the new law themselves (or understand it, if they did read it), then they had no idea about what they needed to do, to plan for their own returns. The second thing is, unfortunately, a result of the short attention spans that people seem to have these days, and how they don’t read things that they receive. As I said, I sent out multiple e-blasts in 2018, warning clients about the new tax law/withholding tables, and recommended that they contact me so that I could run some numbers and do an income/tax/withholding projection for them. A couple of clients took me up on that, and the projections showed big balances due, so with my help, they changed their withholding exemptions and/or estimated tax payments for the balance of 2018. As a result of that, once their tax returns were finished, they were very happy that the adjustments they made brought them closer to a break-even, and not a big balance due like the projection showed. Unfortunately, most people either didn’t read the warnings that I sent out during the year or didn’t enlist my assistance, and they were the ones who said “I owe HOW MUCH?! I spent a lot of time this past tax season explaining to people why their balances due were so high, and how under withheld they were on their W-2 income, and how their itemized deductions were so much less this year.
At various networking events that I’ve attended since getting my life back after tax season, as part of my “sixty second elevator pitch” I tell people that tax planning is something that can (and should) be done at any time during the year. And for the people who had a big balance due on their 2018 return (especially those who were under withheld on their W-2 income), doing an income/tax/withholding projection has taken on a greater urgency than in the past. IRS has all sorts of information about doing a “paycheck checkup” and has a “tax withholding estimator” function in their website, and that’s all fine and dandy, if a person understands what they’re looking at, or takes the time to read what IRS has written. I know that what I’m about to write is biased, but the best way to get a handle on what your numbers will look like for 2019 is to have a tax professional help you, and prepare a projection for you. Yes, it’ll take some time and there will be a cost involved, but wouldn’t you like to know now that you’re projected to owe, say, $15,000 on your federal return, so that you can plan for that and increase your withholding or make a couple of estimated tax payments between now and tax season? Or would you prefer to be surprised and find out that you owe $15,000 on your return, especially when you may have spent that money already?
A long time ago I heard the term “people don’t plan to fail, but they fail to plan”. It was aimed at financial planning for the future, but it can just as easily be said about tax planning. Don’t fail to plan!