As we dive head first into the personal income tax season after the passage of the new tax law, it’s becoming evident that the new law has many effects that weren’t foreseen. News stories are beginning to pop up about filers that owe where in previous years they got refunds. Most of this is due not only to changes in the tax laws, but also to employees underestimating their own tax bill and taking too many exemptions on their W-4. We recommend that employers get new W-4s from their employees every year so the staff has the opportunity to review their tax situation and make adjustments as necessary.
Some of the law changes have a major impact. While it’s great that the standard deduction has doubled, in high tax states such as California, this may not offset the loss of the income tax deduction. With the deduction for State, Local, and Property (SALT) taxes limited, many taxpayers will not be able to itemize and therefore lose out on other deductions such as charitable contributions and unreimbursed business expenses.
And how does this now affect your income as a nonprofit? Do you rely on contributions as a source of revenue beyond grant income? What are you doing to promote charitable giving in light of the potential loss of a tax deduction?
As we move forward into 2019, be a good employer and talk to your employees about adjusting their withholdings to compensate for the new law. The changes in the IRS tax tables last year helped us all bring home a little more in each paycheck, but if it ends up with us owing at filing, maybe it’s time to rethink what we’re taking home.
