Feel like you’re paying too much to Uncle Sam in taxes? Is your yearly tax bill causing you anxiety and frustration?
Having to shell out a couple thousand on your tax return definitely isn’t the most pleasant feeling in the world. Overpaying each paycheck isn’t the answer either. So how do you find the middle ground? Just like everything in life, balance is the key. That balance can and should be found in your W-4 and various tax forms.
Knowing WHY you might find yourself in a tax-paying situation is the most important way to avoid owing. There are multiple reasons that people may find themselves owing at the end of the tax year including:
- Having too many withholdings on your W-4. Yes, making a little extra every pay period is a good thing, but just like the saying goes… “too much of a good thing can be bad”. Make sure you are paying enough taxes on a pay period basis so you don’t end up taxed heavily at the end of the year.
- Moonlighting is a great way to make a bit of extra cash. Be aware and take that into account so you can save for that bigger tax bill.
- Self-employment tax can be a bigger issue than income taxes.
- Forgetting to adjust those withholdings during great moments of change can lead to you owing major money. No more children to claim as dependents? Increase in your monthly income? Things change and that can lead to owing.
Beyond just recognizing what it is that may be hurting your pocket, learn to utilize some very valuable tools that can be found online to increase your understanding of possible tax liability.
- A great tool found on the web is the online paycheck calculator. By entering your yearly income, tax allowances, and state, the online paycheck calculator can provide you with a decent estimate of what your tax liability for the year will be.
- The IRS also provides a tax-withholding calculator that can be found here. This one is more in-depth than others you might find online and will ask you questions about a variety of financial factors. Yet, this is still a great way to get an idea of what you may owe or receive on your return.
- If you’re familiar with a 1040 Form and have a specific tax software you like to use, feel free to create a sample tax return. This one may be more challenging to use as you’re basically recycling last year’s tax laws. However, if you’re willing to do a little work, you can find out what has changed this tax season and input this year’s financial info to get an accurate picture.
So you’ve figured out a possible issue and have strategically used the previously mentioned resources. Here are a couple of solutions that may help to resolve the problem.
- Not paying enough taxes on your paycheck? The easiest solution is to fill out a new W-4. Don’t worry. You do not need permission from your employer to change any of your financial information. All you have to do is go to the IRS’s website and print out a new W-4 form. On line 6, which states, “additional amount, if any, you want to be withheld from each paycheck”, fill in the difference that you should be paying each period. The tax calculator mentioned before should come in handy at this time. When you’re done, take this form back to your HR department.
- You can have income tax withheld on your non-wage income. Receiving social security or unemployment benefits? Complete Form W-4V which can be found on the IRS website, but just remember to send it to the specific payer – NOT the IRS. You can have 7%, 10%, 15%, or 25% withheld, and even though it might hurt at the moment, it can save you from a major springtime burden.
- Life can change at a given moment and because of that you need to keep up with reconfiguring your tax withholdings as needed. Getting married, no longer being able to claim dependents, or taking on freelance work? All this can change your financial situation. You need to recalculate your income when necessary and make sure to update those W-4’
Gonzalez & Arrambide, Inc. wants to provide you with the best advise possible. We know that taxes can be a bit confusing and daunting. Let us walk you through the steps to ensure you avoid paying outrageous taxes to the IRS. Give us a call at 956.447.9009 and we’ll make sure you make the best decisions. Because with taxes – – every penny counts.