The Payroll Blog

News, tips, and advice for small business owners

Tax Changes to Expect in 2019 (Part 2)

Posted On
12/20/2018
By
Stephanie Davis

When it comes to tax season, you’re likely crossing your fingers that a big refund is coming your way—but it’s important to get things in order now to help anticipate what your final tax liability will be. 

This year, it is suggested that people may owe more due to the Tax Cuts and Jobs Act (TCJA) signed into law last year. When the TCJA was enacted, it came with talking points that suggested many taxpayers would see a tax break as a result. But actually seeing this promised tax cut depends on the withholding allowance you have on file with your employer.  The TCJA also impacted itemized deductions and what can be claimed as tax-exempt.

Wondering what changed with the TCJA and what that means for you? We’re going to break it down in this post.

Understand Your Withholding

Ideally, you should review your withholding allowance ahead of each new year. If you haven’t updated yours in a while, you’ll want to check what you have on file now so you can get an idea of what you might owe come April 15th—and you’ll see if you need to update your information for the 2019 calendar year. The IRS offers a free withholding calculator that you can use to get an idea of what to expect in terms of taxes owed or an estimated refund that may be coming your way.

Bottom line: When you withhold too much, you get a refund; conversely, when you withhold too little you will owe money when taxes are due.

Pro tip: As a small business owner, while you won’t have to fill out Form W-4, you could complete one to calculate your personal withholding allowance. As this is a form your employees are going to have to fill out, it may help to get a refresher on four things to know about Form W-4.

Deductions Changes

To prepare for 2018 taxes, it’s important to understand what’s changed:

  1. The standard deduction increased. A standard deduction is the portion of income that is not subject to tax that can be used to reduce your total tax liability. In 2018, individuals saw their standard deduction increase from $6,350 to $12,000, married couples’ standard deduction increased from $13,000 to $24,000, and head of household filers’ standard deduction went up to $18,000 from $9,500.
  2. Personal exemptions decreased. While the standard deduction increased, personal exemptions were cut. While not technically considered a deduction, personal exemptions allowed taxpayers an additional taxable income exemption of $4,050 for each dependent claimed.
  3. Miscellaneous itemized deductions. Some miscellaneous itemized deductions were cut, including:
    • unreimbursed work expenses
    • unreimbursed qualified employee education expenses deduction
    • costs related to tax preparation services
    • investment fees
    • professional dues
  4. Moving expense deductions. In prior tax years anyone who relocated for a job within the tax year was able to claim certain moving expenses according to criteria set forth by the IRS. In 2018, this was eliminated for everyone except members of the armed forces.
  5. Natural disaster deductions. Every calendar year sees its fair share of natural disasters, be they hurricanes, earthquakes, or wildfires. If you are impacted, you are generally able to deduct a portion of any losses you incurred that were not covered by insurance or other relief programs. While the benefit is still available in 2018, tax legislation was updated. Eligibility to claim this deduction is dependent on where the damage happened: you must be in a presidentially designated disaster zone to claim your damages. These designations are typically made on a county-by-county basis.

These are just a few of the deduction changes you can expect to see. If you’re interested, U.S. News and World Report has compiled a full list of deductions.

Next steps

Taxes are always tricky and these are only a few things you should be aware of as we quickly approach 2019. In the meantime, if you’re worried about owing on taxes, try to get ahead of it now and come up with a game plan for what you can do if you find yourself in that situation. As a small business owner, cash flow can occasionally be difficult to manage, especially during busy season, so start making plans now to avoid issues later.