With less than two months left in the year, the coming of another tax season is already on the horizon. It’s a time to take actions that may be necessary in order to avoid unpleasant encounters with the IRS down the road.
In this post, then, we will take note of a few tips on tax withholding the IRS recently offered for taxpayers to prepare for the inevitable tax-time in the new year.
One of the most basic but important things you can check on as an individual taxpayer is how you have your withholding allowances set. This is because the amount of tax you pay is significantly affected by how much money your employer keeps back from your paycheck for tax payments.
Of course, there are various issues that can arise regarding employment tax withholding. As we discussed in our August 21 post, the IRS has the authority to go after employers who do not comply with withholding guidelines.
For individuals, however, adjustments to withholding allowances are pretty basic. You may be concerned about getting hit with a big tax bill because not enough money is being withheld from your paycheck. If so, you may want to complete a new W-4 form to increase the withholding.
The converse is also true. If you think too much is being taken out of your check, you can adjust the amount downwards. That may be better for your personal situation than waiting for a tax refund.
The IRS has an online tool that can assist with these types of calculations.
Not all income is subject to withholding requirements. But if you are considered self-employed for tax purposes, you should make sure you are up to date on your estimated tax payments. Keep in mind, too, that estimated tax payment requirements may also apply to interest income or rent.
Source: IRS.gov, “Still Time to Act to Avoid Surprises at Tax-Time,” IRS Special Edition Tax Tip 2014-21, Oct. 23, 2014