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It's time for itemizers to check payroll tax withholding

Schedule A itemized tax deductions

Taxes are complicated. Most filers, however, escape some of the hassle by claiming the standard deduction instead of itemizing expenses.

Over the years, around 70 percent of taxpayers annually have taken the standard deduction route. That number is likely to increase next year, when even more folks filing 2018 returns will claim the standard deduction amounts because, under the Tax Cuts and Jobs Act (TCJA), they have almost doubled.

A few of us, though, will stick with Schedule A and our itemized expenses. And we, says the Internal Revenue Service, need to look at our payroll withholding now because of the changes that the TCJA now makes here.

Itemized changes: The tax law changes include many popular Schedule A tax breaks.

The major ones are:

  • Limiting the deductions for state and local taxes to $10,000.
  • Limiting the deduction for home mortgage interest in certain cases. This include a reduction for new home acquisition debt to $750,000 instead of the prior $1 million mortgage cap. There also are new limits on what kind of home equity loans are deductible.
  • Eliminating the miscellaneous expenses dedcution. This means you now cannot count such things as unreimbursed employee business expenses, tax preparation fees and a variety of investment expenses, such as investment management fees, safe deposit box fees and investment expenses from pass-through entities.

Full itemization for extended returns: If you got an extension to file your 2017 taxes, you can still claim the pre-TCJA Schedule A expenses that disappeared at the start of this year.

My post prior to last month's Tax Day discusses those still-available-for-some itemized deductions.

You might want to bookmark it. If the temporary TCJA individual tax law changes aren't extended or made permanent, these itemized expenses will be back in 2016.

Eight years of fewer tax claims: But for 2018 through 2025, many of these write-offs are gone. And they could affect the amount of tax you owe.

That's why, says the IRS, itemizing taxpayers need should check their payroll withholding now, while there's still plenty of time to make adjustments so as to avoid tax surprises.

A paycheck checkup now means you have more pay periods for the withholding changes to take effect. That will spread your adjusted withholding amount out more evenly throughout the rest of this year.

If you wait, however, the fewer pay periods in which to make the tax withholding changes could mean a bigger impact — and not a good one if you find you need to have more withholding — on each paycheck.

And not getting withholding just right could also could result in an unexpected tax bill or penalty at tax time in 2019.

Use the IRS online calculator: So how do you know whether to have more or less withheld?

The easiest way to find out your appropriate withholding amount is to use the IRS' online Withholding Calculator.

When you use the calculator, you indicate whether you're taking the standard deduction or itemizing. If itemizing, you'll be asked to enter estimates of your expected deductions. The withholding calculator then applies the new tax law to these amounts when figuring your withholding.

IRS withholding calculator video tips
Click image for IRS withholding calculator video tips via YouTube.

As the IRS withholding calculator tips video above indicates, it's helpful if you have your completed 2017 tax return available when you use the online tool. That information can help you estimate the amount of income, deductions, adjustments and credits to enter.

Also have handy your most recent pay stubs. These help the calculator compute your withholding so far this year.

Change W-4s as necessary: Remember, too, that the IRS withholding calculator is like all online tools. It's only as reliable as the information entered. That's why even if you use it now, you'll need to readjust your withholding if your personal circumstances that affect your tax bill change during the year.

Just take the data from the withholding calculator and enter it into a new Form W-4. Then take that document to your payroll office.

You can change your withholding amount as often as you'd like or need to — until, of course, your payroll administrator refuses to let you into his or her office! — to ensure that it's correct.

You also might find these items of interest:

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