IRS issues tax reform guide for next year’s tax filing season

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The Tax Cuts and Jobs Act made significant changes to the federal tax code, many of which will affect your 2018 taxes that you’ll file in 2019.

The IRS estimates that it needs to revise more than 400 taxpayer forms, instructions and publications for the 2019 filing season. To help individual taxpayers understand how tax reform will affect their 2018 federal income taxes, the IRS has issued a new guide: Publication 5307, Tax Reform Basics for Individuals and Families.

Want to know more?

What’s the background?

In December 2017, Congress passed the Tax Cuts and Jobs Act, also known as the TCJA. It was the first major change in the federal tax code since the Tax Reform Act of 1986. The TCJA affects many aspects of the tax code.

Changes include:

  • Lower individual and corporate tax rates
  • Higher standard deductions across all filing statuses
  • Suspended deduction for personal exemptions
  • Changes in itemized deductions
  • Changes to benefits for dependents
  • Changes in the alternative minimum tax
  • Changes to how some retirement and college savings accounts are treated for tax purposes.

How will this impact you?

Because virtually all taxpayers are affected by these tax code changes, many of which go into effect for the 2018 tax year, you may be wondering what to expect or do. The IRS aims to answer at least some of taxpayers’ biggest questions in Publication 5307.

The publication gives an overview of tax reform and explains key issues like:

  • Tax rates and why you should update your tax withholding
  • Instructions for using the IRS Withholding Calculator
  • Making estimated tax payments
  • What the higher deductions will mean to some taxpayers
  • How changes to itemized deductions could affect taxpayers

If you saw a change in your paycheck earlier this year, when employers began using the updated withholding tables issued by the IRS, you should check your withholding to ensure you’re having the right amount of tax taken out of your paycheck.

You’re typically expected to pay at least 90% of the federal income tax you owe throughout the year. If you have too little withheld, you might face a big tax bill — and possibly even interest and IRS penalties — on April 15.

What’s next?

In 2019 — by the Tax Day deadline for filing 2018 federal income tax returns — Americans will experience the full effect of the tax code changes on their tax returns for the first time. Some taxpayers may be in for a few surprises. They could discover a higher standard deduction for their filing status means it’s no longer worth it to itemize their deductions. Or, they could find they didn’t have enough tax withheld throughout the year and now face a big tax bill.

Learn more: Are you among the millions who are projected to owe the IRS next year due to under-withholding?

You can prepare yourself by:

  • Checking your withholdings to see if you need to make last-minute adjustments so you’ll have the right amount of tax withheld from your paycheck. You can make changes by updating your W-4.
  • If you itemized deductions last year, compare that amount — and how much you think you’ll be able to deduct this year — to the new standard deduction for your filing status.

Read IRS Publication 5307 to learn more about tax reform and how it could affect you. At just 14 pages, it’s a short read compared to many other IRS publications and forms.