Manifesto

Most therapists see a therapist.

The Seattle Seahawks have almost as many coaches as players.

And even the most seasoned climber doesn’t summit Everest without a Sherpa.

You know why?

Because having a guide helps.

If you don’t know the way, a guide is indispensable.

But even if you’re an expert or well on your way, a guide can offer assurance, show you a few shortcuts and make sure you don’t stray off course.

We are guides.

And we help people navigate something far more compelling than a trail or path or investment opportunities and the market.

We don’t start a relationship by offering hot stock tips and patent-pending investment strategies.

We sit down and get to know our clients.

Where are they in their lives?

What makes them happy and fulfilled?

What do they want from their future?

Once we know where they are and where they want to go, we can set out on a journey to get there together.

And hey, if we decide we want to change where we’re going or take a different route, that’s okay too.

We’re expert guides, so we can help even the most sophisticated investor, but we pride ourselves on making the complicated easy to understand for everyone.

So we don’t put our arms around a client’s portfolio and drag it over to our side of the table and tell them we’ll take it from here.

We work with our clients to make sure they understand and are invested in the decisions we make.

We don’t sell our clients products; we help them make choices.

About the kind of life they want to live.

About when and how they want to retire.

And what kind of legacy they want to leave behind for their families, their communities, and the world.

We are Summit.

And we know it’s a bit cheesy, but darn it, we believe this to be true.

We guide our clients towards their dreams.

 

Is Your W-4 Withholding Accurate?

We all know that federal income taxes are withheld from our paychecks. But are you aware of the degree of control you have over how much is withheld? Here, we’ll discuss the importance of having an accurate W-4 holding, including how recent changes to the tax code present a unique situation for taxpayers in 2018.

 

W-4 breakdown

Let’s start with how the W-4 actually works. In a nutshell, your employer adjusts your gross pay and calculates how much federal income tax to withhold from your paycheck based on the withholding allowances you claim on Internal Revenue Service (IRS) Form W-4 (Employee’s Withholding Allowance Certificate). Each allowance you claim exempts a portion of your income from federal tax withholding and thereby increases what you receive in your paycheck. So, if you claim too many allowances, not enough tax will be withheld from your paycheck, and you will owe the IRS come April 15. If you claim too few allowances? An unnecessarily high amount of tax will be withheld from your paycheck, and you will get a tax return.

Of course, no one wants to get hit with a large tax bill. But getting a tax return is not necessarily a better option. It simply means you have paid more than your share in federal income tax and essentially have given the federal government an interest-free loan. As such, the optimal result from a cash flow and financial planning standpoint is to land right in the middle: maximizing income received in each paycheck without owing additional taxes when you file.

 

Time to check your W-4 withholding: The Tax Cuts and Jobs Act (TCJA)

Best practice is to review your W-4 annually. Further, it is especially important to check when you experience a major life event, such as marriage, birth or adoption of a child, a spouse getting or losing a job, or a significant pay raise or pay cut. Each of these events can directly affect the amount of tax you will owe. This year presents a unique situation, however, because the implementation of the TCJA means that everyone’s tax situation has changed in 2018.

 

Tax brackets. There are seven new income tax brackets: 10 percent, 12 percent, 22 percent, 24 percent, 32 percent, 35 percent, and 37 percent. With these new brackets in place, many people making the same income in 2018 that they did in 2017 will find themselves in a lower tax bracket. As a result, many are taking home more money in their paychecks in 2018 compared with 2017.

 

Standard deduction. The TCJA also increased standard deductions across the board.

  • For single individuals or for married couples filing separately, the standard deduction increased from $6,350 to $12,000.
  • For heads of household, the standard deduction rose from $9,350 to $18,000.
  • For married couples filing jointly, the standard deduction went from $12,700 to $24,000.

In addition, the TCJA eliminated miscellaneous itemized deductions and limits state and local income and property tax deductions to $10,000.

So, what does this mean to you? The amount you will owe in federal income tax, the deductions you will be able to take, and the amount that should be withheld from your paycheck have all likely changed.

 

Finding the “sweet spot”

The simplest and most accurate way to determine your appropriate W-4 withholding election is to use the IRS Withholding Calculator, available on the IRS’s website. Keep in mind that this calculator is designed for most taxpayers, but people with especially complex tax situations may need to reference Publication 505 (Tax Withholding and Estimated Tax).

The calculator will ask for your filing status, your family situation, your income, your current withholding, and other information that could affect your 2018 taxes. To expedite the process and ensure the most accurate result, be sure to have your most recent pay stubs, the previous year’s income tax return, and a copy of your completed Form 1040 on hand before using the calculator.

If the calculator recommends adjusting your withholding, there’s no need to wait! You can adjust your W-4 withholding with your employer at any time, and the change will be reflected in your future paychecks. One important note here: If the calculator recommends a change to your withholding for 2018, be sure to check back at the start of 2019. Why? The calculator is designed to adjust your withholdings so that you pay the correct amount of federal income tax for the current year, based on the information you provide. A midyear withholding change in 2018 may have a different full-year impact in 2019.

 

Want to learn more?

Of course, this is a general discussion of ensuring accurate W-4 withholdings. If you have additional questions or would like more in-depth information about your withholding, be sure to consult your employer or tax advisor.