Q & A

The New 2020 W-4 and What It Means for You

This newly formatted W-4 has left many HR and Accounting professionals scratching their heads. Withholdings should be something you set and forget, but the new system is confusing employees and leaving them unsure what to do. We’re pretty unimpressed with the IRS’ W-4 calculator (linked below), finding it both difficult to use and sometimes misleading, so we’ve compiled some resources to tackle this burning question.

To start, why do you need the new W-4? You’ll only need it if you need to fill out a new W-4 this year, for a new job, a new company, or to update your withholdings. You might want to update your withholdings if certain events transpired: if you owed a substantial amount on last year’s tax return, you received a sizeable refund on last year’s return, or your joint income bumps you up to a higher bracket. This last reason is, by far, the trickiest reason to understand and the sneakiest way that you might end up owing money at tax time.

There are several other instances where a new W-4 may be helpful…

  • a change in marital status, dependents, or income
  • new home ownership
  • receiving dividend income
  • seasonal or freelance work

So…  How can you tell if enough or too much is being withheld?

First, we recommend using last year as a benchmark. If you have the same job(s) this year as you did last year, with minimal change in wage, last year is probably a good indication. If you owed a lot last year, you definitely need to set aside extra this year, and vice versa. Keep that benchmark in the back of your mind and then use one of these online calculators: Paycheckcity.com, Nerd Wallet or the IRS. Best practice for using these calculators is to grab your last paystub(s) and the last paystub(s) of your spouse, if applicable.

These calculators go much further than just estimating the withholdings for one job, but try to factor in your other income, the job(s) your spouse has, what you’ve set aside so far during the year, and any major deductions you have. They’re not perfect, but they’re a good start.

For more complex situations or if you want to double-check these online calculators, you may wish to utilize the table below from the Tax Foundation, and get out the old calculator.

  1. To start, take your total expected income for 2020, and find the correct bracket. This is all the W2 and 1099 income that will be reported on your return.
  2. Use the “fill the buckets” mentality and start with the lowest bracket. Let’s take the example of a $50,000 gross salary.
    1. The first $9,875 you earn will be taxed at 10%. That’s $987.50 of taxes. Bucket one filled.
    2. The next $30,250 you earn (your wages over $9,875 but under $40,125) will be taxed at 12%. That’s $3,630 for that bracket. Your total tax so far is the tax for both brackets: $4,617.50.
    3. The next bucket ranges from $40,125 to $85,525 at 22%. However, with a salary of $50,000, we don’t fill the entire bucket. We’ve already calculated tax on the first $40,125 dollars, so we need to calculate the tax on the remaining highest portion of our salary, the dollars over $40,125, which is $9,875 ($50,000-$40,125). The tax on the last $9,875 of our salary is $2,172.50, which brings our tax total up to $6,790.00.
    4. This example also holds if you have a $25,000 salary and your spouse has a $25,000 salary, because the tax you owe together filing jointly will be this “fill the buckets” method with your combined salary.

 

If you haven’t gotten your fill, here’s some additional reading from the IRS…

https://www.irs.gov/newsroom/tax-withholding-how-to-get-it-right

https://www.irs.gov/newsroom/irs-withholding-calculator-can-help-workers-have-right-amount-of-tax-withheld-following-tax-law-changes

 

As always, for more clarity on your books, better tax strategies, and lasting relationships, reach out to Sweeten CPA.

FREE: IMPORTANT HIGHLIGHTS OF THE TAX CUTS AND JOBS ACT OF 2017

By now, you’ve probably heard that the Tax Cuts and Jobs Act (TCJA) of 2017 is the largest overhaul of the Tax Code in thirty years.

You’ve probably also heard conflicting opinions from various sources about how the TCJA will affect you.

In an attempt to give you useful information, Andrew Wallin, CPA, MST of Sweeten CPA has put together a FREE downloadable summary of the TCJA that highlights the major tax law changes, and presents them in plain language. If you’re curious about what is around the bend, tax-wise, for 2018, request the form by entering your email and name.

  1. Business-friendly tax environment
    1. An overall reduction of tax in…
    2. Additional incentives for businesses like…
    3. Past business deductions have now GONE AWAY especially…
  2. Changes for individuals
    1. Income tax rates and brackets changed to…
    2. Standard deduction increased by…
    3. Personal exemptions suspended
    4. “Kiddie tax” modified to…
    5. Change in Obamacare and…
    6. Significant changes to itemized deductions, namely…
  3. Conclusion and summary

Subscribe below to receive your FREE CPA analysis of the new tax bill.




The Time After The Most Wonderful Time of The Year

It’s that time again, folks: time to prepare for tax season! Before too many days of 2016 pass you by, follow the steps below to have the best, most stress-free, and punctual tax season yet!

Set Aside:

As you get documents in the mail over the next few weeks, you should create a place for them to collect before you send them in to your CPA. Make it a place that is easy to access but out of the way, so the documents won’t be bothered. Remember to scan these or hand them in to us before February 15th for corporate returns and March 15th for personal returns. Here are some things you should keep an eye out for.

  • W-2s
  • 1099s
  • End of year loan statements
  • 1098s
  • W-3s
  • End of year statements from bank, especially with amount of money earned on savings accounts for the year
  • Health insurance statements: don’t forget that legislation is changing all the time on this. Tax returns and bookkeeping are taking up more time to compensate for the new policies. You’re trying to figure this out and we’re here to help. We need to know how you received insurance, how much, by whom, which family members, and what dates, at least. Send us your insurance premiums, whether paid out of pocket, reported on your W-2, or paid from your company– the more information we have, the better.
  • And more! If it looks important, it’s better to send it to us than not!

 

Write Down:

Before you forget, write down or gather together this important information that Sweeten CPA will need to complete your return:

  • Total mileage for 2015!maxresdefault.jpg
  • Business mileage
  • Business expenditures from personal accounts
  • And more! If you have any questions, shoot us an email

 

Happy Tax Season and we’ll see you soon!

 

Business Travel: What can I deduct?

The general rule: whatever expense is necessary and ordinary in making money for your business is a legitimate business expense.  Especially in today’s global economy, this involves traveling.  Many of our fabulous clients ask us which expenses come under the tax-deductible business travel umbrella and how to claim them.  First, if you are a business owner, these expenses for you and your employees will be an expense to your business on your company’s books.  However if you are an employee and your employer does not reimburse you for your business travel (most will), hang on to the receipts and hand them over to your accountant as they can be itemized deductions on your personal taxes.  In either case, and as with anything, the key to maximizing this deduction is to keep great records. Continue reading…

An Accounting Blog is Born! (Your Questions Wanted)

It will not be as painfully boring as it sounds.

We, the professionals at Sweeten CPA–the most premier accounting firm serving the Austin, Texas, small to medium business community–have decided to share our wit and wisdom with the world about all things ACCOUNTING. We promise to make it dynamic and accurate. We will make it fun and interesting. And we will make it easy to understand!

Continue reading…