All taxpayers are required to pre-pay taxes over the course of the year using payroll withholding, estimated tax payments or both. Due to the late 2017 passage of tax reform that went into effect in 2018 and the wide range of adjustments, many people did not adjust their withholding and might have underpaid. What should you expect?
Did You Withhold Too Little?
Many people are concerned that they will end up owing the IRS a great deal despite the tax reduction as a result of tax reform. Throughout 2018, the IRS issued alerts that taxpayers could be under-withholding and that taxpayers whose pre-paid taxes were less than the specific safe harbor amounts would be penalized. The safe harbor amounts are either 90% of the current year’s tax liability or 100% of the previous year’s tax liability (110% when the prior year AGI is over $150,000 or $75,000 if married and filing separately).
Will You Be Penalized?
On January 16th, the IRS adjusted safe harbor penalties from 90% to 85%, which will relieve more taxpayers of any penalties. Even if you have failed to meet a safe harbor exception, some people may still be eligible for penalty relief if they:
- Retired (after reaching 62+)
- Became disabled in 2017 or 2018
- Did not make payments due to casualty, disaster or unusual circumstance
- Had taxes due on their 2018 return that was less than $1,000
- Had no tax liability in 2017, were a US citizen or resident alien for all of 2017 and filed a tax return for the entire year
What Can You Do?
Now is the time to talk with Miles Tax Advisory about preparing this year’s taxes and preparing for the future so that you will not be at risk of receiving an underpayment penalty in 2019. With the right accountant by your side, you can rest assured that you will make your payments on time and avoid penalty.
Avoid Tax Trouble with Miles Tax Advisory
Tax time is here, which means now is the time to gather up your paperwork and start the filing process. We are always here to assist you!