2. Rework your withholding
The new law means that the W-4 you filled out however many years ago may need to be recalibrated. The IRS came out with new withholding tables on Jan. 11 that reflect changes such as the elimination of personal exemptions in the new tax law, but has yet to release an updated withholding calculator or a revised W-4 form. Additionally, the new tables don’t reflect all the changes that may affect a taxpayer next year, so they’re a somewhat of a blunt tool.
If workers leave their W-4 as is, they could wind up withholding too little, which can bring penalties, or they may get a smaller-than-expected refund next year. Workers in higher tax brackets who receive large bonuses could see a higher tax bill next season if they don't tweak W-4s, since one of the ways employers can set the withholding rate on “supplemental income” such as bonuses in the new law is to use a flat rate of 22 percent.
“A large percentage of our clients will see a tax increase due to being in a high property and high-income tax area,” said Beach of Campbell Wealth Management. “My fear is that the new withholding tables will have them under-withhold and then they will have to write a check in April.” The only solution he sees to deal with that now is for clients to make quarterly estimated payments. H&R Block expects its new tool to help people figure out if they need to change their withholding, and Liberty Tax Service is crunching on a new calculator to let those who get W-2 and 1099 forms make sure their withholding is appropriate. The goal is for the calculator to be ready for the later part of the filing season, which starts around March 1, said Martha O’Gorman, the company’s chief marketing officer.