For many whose tax returns are fairly static from year to year, the changes brought by the Tax Cuts and Jobs Act (TCJA) threw a monkey wrench into things. Even for those who will ultimately pay less in taxes for the 2018 tax year, the uncertainty as to how the TCJA will impact their total tax bill—and whether their 2018 withholdings were correct—can be stressful.
But fortunately, once taxpayers have completed their 2018 income tax returns they'll finally know exactly how the TCJA affected their bottom line. Tax preparers then have the opportunity to tweak clients' 2019 tax breaks early in the year, maximizing their savings in April 2020.
A Lower Tax Bracket
If any of your clients are paying a lower marginal tax rate than they did in 2017, they may want to consider directing some of your long-term savings to a post-tax account like a Roth IRA. The TCJA’s tax bracket reductions will expire in 2026 (unless extended), which means many households are likely to be paying a higher tax rate in retirement than they are today. Putting money aside at today’s tax rates and withdrawing it tax-free in another few decades can seriously increase a client's overall return on investment.
More (or Fewer) Withholdings
While not everyone wants to receive a tax refund, taxpayers don't want to under-withhold either—doing so can carry some stiff penalties. And the IRS's published tax tables don't always accurately identify the number of exemptions taxpayers should list on their W-4 form. Once 2018 taxes have been filed, most taxpayers should have a better idea of whether they need to change their withholdings for 2019.
Change in Business Structure
The TCJA has some especially favorable tax treatment for certain types of pass-through businesses. Sole proprietors and small business owners may benefit from re-incorporating or revamping their business to reduce their tax rate.