Every year people fret. Are my exemptions correct? Did my employer deduct enough taxes? Will I owe? How much of a return will I get back? Questions such as these tend to swarm in the minds of many of us at the beginning of every tax season.
As you may already know the IRS holds you accountable on whether or not you are tax withholding enough from your check to pay your taxes each year. If you didn't know that, news flash: it's very true! And if you don't withhold enough to pay your taxes for the year, you will need to pay the different before that mid April deadline. But how would you ever know if their correct? Good news! The IRS has launched an improved tax withholding estimator tool that will allow you, as the employee, to know if the tax figures are correct (click here: IRS Tax Withholding Estimator Tool).
Using this tool can help you avoid unexpected tax bills. With all the recent tax law changes that have gone into effect recently it’s better to know how to avoid owing, than not know and get a fat tax bill. Here are a few additional tips you can use right now to avoid a tax bill this upcoming season:
1. Change your withholding allowances.
To do this you need to submit an updated W-4 form to your employer to increase the amount of income tax withheld on your paycheck. Though it means a smaller paycheck because more tax is being paid upfront, it will result in less taxes owed when income taxes are processed and may even result in a refund.
2. Have an extra amount withheld.
This also means that you need to submit an updated W-4 form to your employer. Instead of updating your exemptions, you will opt to just have a flat amount taken out. The additional withholding you decided on will go toward the amount of taxes that you scheduled to pay at the end of the 2019 tax year and will result in less taxes owed. The convenience of this approach knowing exactly how much extra you are paying throughout the year per pay. For example: If you decided to withhold an additional $50 out of each check (toward your federal taxes) and you are paid biweekly, you would be paying an estimated extra $1,300 during that given tax year (if you started the extra withholding in January).
3. Make estimated tax payments throughout the year.
With this approach you can submit payments at the end of each quarter throughout the year to assist in offsetting the amount of estimated tax you are scheduled to pay at the end of the tax year. For instance, to offset the remainder of the tax year 2019, estimated tax payments are due from individuals on September 30, 2019 and January 15, 2020. The IRS even has fast and easy methods to make these payments online. Be sure to visit https://www.irs.gov/payments for more information on this option.
So...Who needs to double check their withholdings?
Anyone who can ‘yes’ to one of the following:
Have two-income family
Someone with multiple jobs
Someone working a seasonal job or only works part of the year
Individuals who claim child tax credit
Those who have dependents age 17 or older
Individuals who have itemized their deductions in previous tax years
Have high income or complicated tax return
Had a large tax refund last year
Had a tax bill last year
If you have questions, or want more information on this topic, you can contact The HOPE Accounting Firm at 216.744.9303 or at contact@hopeaccountingfirm.com. This information is also available through the IRS website at www.IRS.gov.