Three Signs that it is Time to Check Your Withholding
To avoid a surprise tax bill or penalty at tax time, the IRS recommends that you check your tax withholding in the early part of every year, when the tax law changes, and when you notice one of the following signs.
1. A large tax refund. If you receive a large refund this year, consider adjusting your withholding so that less tax is withheld from your paychecks throughout the year. After all, a refund is simply the return of money that you over paid to the government in the prior year. Instead of giving the government the free use of your money for several months, arrange for your employer to decrease the amount of tax withheld from your paycheck so that it is closer to your actual tax liability. Adjusting your withholding this way will increase the size of your paychecks and make it possible for you to put your money to work sooner.
2. A large tax bill. If you owe a large amount of tax when you file your tax return, it’s a sign that you didn’t pay enough tax over the course of the prior year. Depending on the amount you underpaid, the IRS may assess a penalty. To avoid or minimize underpayments and penalties in the future, you can adjust your withholding so that more tax is withheld from your paychecks throughout the year.
3. A major change in your life or finances. Changes in your marital status, number of dependents, and finances can have a big impact on your taxes and the amount of tax that should be withheld. To help ensure that the correct amount is withheld, it’s a good idea to check your withholding whenever you get married, get divorced, or add a new child to the family. Also check it when an older child stops being a dependent, your or your spouse start or stop a job, your taxable investment income changes significantly, or other tax-related changes in your financial situation occur.
How to adjust your withholding.
Employees can adjust their withholding by giving a new Form W-4 to their employers. The worksheets that accompany the form or, for more accuracy, the Tax Withholding Estimator tool on the IRS website (irs.gov/W4App) can help employees complete the form.
With offices in Rutland and Williston, Vermont Copper Leaf Financial develops a customized wealth management plan designed to integrate every aspect of your financial life. Our team of advisors includes Certified Public Accountants. We look through every aspect of your financial plan and identify opportunities to put tax-efficient strategies into play for you - strategies that should be applied today and revisited as your circumstances evolve with the goal of a prosperous tomorrow. Call us today at 802.878.2731 to schedule a strategy session and begin building your road map to financial success.
Article published in March 2020 edition of Eye on Money. If you would like to be added to our mail list please email email@example.com.