You may remember filing your first 1040-EZ as a teenager with a part-time job. A few easy questions and you were finished except for waiting for your nice refund to arrive. Things are very different now as your life and your employment have become more complicated. Additionally, it seems like every year the tax laws change.
If you are confused about the new tax laws, you are not alone. Like many, you may be planning to wait until next filing season to read about the changes and learn how they affect the way you will file your taxes. However, if you wait, it may be too late to make important changes that could cost you money.
How do the changes affect you?
The Government Accountability Office recently informed Congress that about 20 percent of Americans will owe money on their taxes this year because they did not have enough withheld by their employer. However, almost 75 percent will have too much withheld from their paychecks. While you may feel it is good to get a refund from the IRS, chances are you could put that money to better use if you received it when you earned it each week.
The new tax law may affect the amount of money you need to have your employer deduct for taxes from your paycheck. It is worth it to review your withholdings and compare it to the changes to make sure you are having an appropriate amount withheld. Some of the changes in the law include the following:
- The law eliminates personal exemptions.
- You will no longer claim dependent exemptions.
- The standard deduction is twice what it was last year.
- Individual income rates have dropped.
- Those with higher incomes may now qualify for child tax credits.
There are several sites online, including the IRS, where you can access withholding tables and guidelines to compare to your current deductions. Reviewing your W-4 each year is always a smart idea, especially if you have experienced any major changes in your life, such as getting married or having a child. While itemizing your deductions used to be the preferred method of saving money on your income tax returns, the increase in the standard deduction means it is unnecessary for you to itemize.
All of this may sound confusing, and you are not alone to feel overwhelmed by the possible ramifications of making a costly mistake. Fortunately, there are resources available in Ohio to guide you through the legal issues that often accompany tax matters.