Most people across the country will have lower federal income taxes in 2018 than in 2017. But that’s not true of my core group of clients in the Philadelphia and New Jersey area. This blog post list the characteristics that put a taxpayer at highest risk of facing a higher tax bill this coming spring.
- High property tax areas – It’s not uncommon in this region for property taxes to vary widely from one neighborhood to another. Some people pay $3,000 per year, for example, while others pay $30,000.
- Professional service industries – The new law excludes certain classes of occupations from the benefit of 20% self-employment income exclusion.
- Two or more homes – Many upper middle class families around here have shore houses or vacation homes. Property taxes and mortgage interest are severely limited.
- Investment portfolios – Assuming that investment fees are the same as in 2017, it appears that the elimination of deduction for investment advisory fees could could add $2,000 or more tax for some who live off their portfolio income.
- Successful sales representatives – salespeople with home offices who pay their own work-related expenses are crushed by this change in the law.
If your tax withholding was calculated or adjusted without considering these factors (and others) then you are at risk of owing money next spring even if your overall tax liability decreased from 2018. In many cases employers made incorrect assumptions and individual employees have not yet discovered the error. The IRS says millions of taxpayers are adversely affected.
A range of tax-efficient strategies are available to address and offset the negative impact of tax law changes but those are only possible after taking deliberate tax-planning steps. The IRS recommends that all taxpayers run a projection of 2018 taxes as soon as possible. I suggest that those at high risk of higher taxes should run a tax projection under current law as well as after adopting tax planning strategies.
This year, more than ever, it will require disciplined implementation of tax-reducing strategies to keep income taxes at a minimum.