Millions of taxpayers receive refunds each year. Will you be among them? Most of us will happily accept our tax refund checks, because we can usually use the money. However, it’s important to understand that refunds actually cost you money. Here’s why:
* The government pays no interest on refunds. Kept in your hands, those dollars could have been productive. For example, you could have invested the money or used it to pay off your debt during the year. If the money had been added to a 401(k) plan, tax could have been deferred on both the investment and its earnings. Even better, your employer might have matched all or part of your investment, adding to your retirement savings.
* Refunded cash is not available for use until actually received. Even though most taxpayers get their refund checks promptly, circumstances or errors can delay (or stop) a refund.
To manage potential tax refunds, consider reducing your withholding or estimated tax payments. For most taxpayers, withholding must equal either the prior-year’s tax or 90% of the current year’s liability. If your annual income changes little, it’s relatively easy to avoid overwithholding. You should consider filing a revised Form W-4 withholding statement with your employer if you’re having too much withheld.
For taxpayers with fluctuating income or multiple sources of income, the problem is more complex. The IRS provides a worksheet with Form W-4, but many people find the form complicated. If you’d like assistance adjusting your withholding, contact our office.
Will wedding bells be ringing for you along with holiday sleigh bells this year? If so, add tax planning to your to-do list. Here are tax tips for soon-to-be newlyweds.
Check the effect marriage will have on your tax bill. If you both work and earn about the same income, you may need to adjust your tax withholding to avoid an unexpected tax bill next April, as well as potential penalty and interest charges for underpayment of taxes.
Notify your employer. Both you and your spouse will need to file new Forms W-4, Employee’s Withholding Allowance Certificate, with your employers to reflect your married status.
Notify the IRS. You can use Form 8822, Change of Address, to update your mailing address if you move to a new home.
Notify the insurance marketplace. If you receive advance payments of the health insurance premium tax credit, marriage may change the amount you can claim.
Update your social security information. You’ll need a certified copy of your marriage certificate to accompany Form SS-5, Application for a Social Security Card, if you change your name. Otherwise the IRS won’t be able to cross-match your new name and your social security number when you file your return with your spouse.
Review your financial paperwork. Update your estate plan, making appropriate changes to wills, powers-of-attorney, and health care directives. Also review the beneficiary designations on your retirement plans and insurance policies.
Have questions? Contact us. We’ll help you get the financial part of your married life off to a great start.
Did you receive a big tax refund or owe the IRS a lot of money for 2015? Then it’s time to update the form that tells your employer how to calculate your federal income tax withholding. That’s Form W-4, Employee’s Withholding Allowance Certificate, and here’s what you need to know.
Filing a new Form W-4 with your employer allows you to adjust your income tax withholding to avoid overpaying or underpaying tax for 2016. The form comes with a worksheet to figure out how many allowances you should claim. These allowances are similar to dependency exemptions on your income tax return. However, the total allowances on your W-4 don’t have to agree with the exemptions you claim on your return. For example, say you’re single and you want to have the maximum amount withheld from your paycheck. You can claim zero allowances on Form W-4. You’ll still claim your personal exemption on the federal income tax return you file next April.
One caution: You should not claim more exemptions than you’re entitled to on Form W-4.
Updating Form W-4 can help adjust your withholding to match the tax you expect to owe. If you need assistance completing the form, give us a call.
If you got a big tax refund or owed the IRS a lot of money when you filed your 2014 tax return, it may be time to adjust your income tax withholding.
Many people like to receive a refund from the IRS, thinking of it as a form of forced saving. If you’re of this opinion, that’s fine. But too big a refund means you’re wasting your money, giving an interest-free loan to the government.
On the other side, if you underpay your taxes by more than $1,000 and don’t meet certain exceptions, you could be hit with a penalty.
Adjusting your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Or you can increase withholding by specifying an extra dollar amount to be withheld from every paycheck.
When reviewing your 2015 tax payments, keep a couple of general rules in mind. Generally, you must pay (through withholding or quarterly estimated payments) at least 100% of last year’s tax liability (110% if your prior year’s adjusted gross income is over $150,000), or at least 90% of what you’ll owe for this year.
However you do it, you should adjust your withholding to match the taxes you expect to owe. If you need assistance figuring out your 2015 tax payments, give us a call.