January 22, 2019


With the end of January, “that time of year” can mean many things to each of us. Those “New Year Resolutions” are hopefully still in operation. Houston’s swing in temperatures leads to head colds. The federal government still remains partially shut down. And your CPA has started reminding you about the tax filing season.

For that last annual rite of winter and early spring, there will be some decidedly different looks and results. As you know, Congress passed the Tax Cuts and Jobs Act (“TCJA”) in late 2017 with most of the provisions effective for the first time in 2018. During much of 2018, Treasury, and, more specifically, the Internal Revenue Service (“IRS”) worried that taxpayers might not have withheld sufficient income taxes from salaries or paid enough on quarterly payment on other income due to the TCJA’s repeal of personal exemptions and the placement of a cap on state and local income tax deductions at $10,000.

Normally the IRS expects each of us to have paid our income taxes (and/or through withholdings on salaries) in four required installments. Failure to pay 90% of the tax shown on the return can result in penalties. There has always been an exception to the 90% rule for those individuals who filed an income tax return for the previous year. This exception allowed payment of 100% of the prior year taxes (or 110% if a married couple’s adjusted gross income exceeded $150,000).

For the 2018 tax reporting year, the IRS announced it is waving the estimated penalty for those taxpayers whose total withholdings and estimated payments made on or before January 15, 2019, equal or exceed 85% of the tax shown on the 2018 return. A late Christmas gift from the IRS? Whatever, we will take it. Update: on March 22 the IRS further expanded the penalty waiver to include those who paid at least 80 percent https://www.irs.gov/newsroom/irs-expands-penalty-waiver-for-those-whose-tax-withholding-and-estimated-tax-payments-fell-short-in-2018-key-threshold-lowered-to-80-percent.

In future postings over the next few weeks, I want to review with you provisions the TCJA designed to “simplify” the code. We will examine the effects of lower rates coupled with substantially increased standard deductions and limitations and/or removal of certain deductions.