Is It Time To Adjust Your Tax Withholdings?
You’ve likely heard of or read about how many taxpayers are writing checks to the IRS rather than receiving checks from the IRS. To keep from finding yourself in the same situation, it’s a good idea to know when you may want to consider adjusting your tax withholdings. That way, you can better ensure you pay all your owed taxes throughout the year and avoid the penalties that often come with owing taxes.
Income Is Higher
If you’ve recently received a raise at work, take some time away from celebrating to tweak your tax withholdings. Because you’re making more money, you may be in a different tax bracket. That could result in you owing more in taxes than you’re used to. Talk to your employer about this ASAP, so you don’t have to spend your increased income on tax penalties and fees.
You Expect To Get a Bigger Refund
Getting a bigger refund than you’re used to is a good problem to have, right? Not necessarily. The issue is that you’re likely getting a bigger refund because you’re withholding too much money from your paychecks. What that means is you’re missing out on an opportunity to immediately invest or save that money now, rather than wait until the next tax season. The more time you have to invest and save money, the more you can take advantage of compounding interest. If you plan on using your tax refund to pay off debt, having immediate access to what you’re owed means you don’t pay as much interest as you would if you wait until several months from now to use your refund to take care of your debts. Adjust your withholdings so you get a smaller refund, but a bigger financial benefit over time.
Your Family or Marriage Situation Changed
Expanding your family can be rather exciting, but it can also be costly in more ways than one. When you have a child, the number of allowances you can claim on your tax forms changes, meaning you can either owe more money or get more money back. The longer you wait to change your withholdings accordingly, the fewer pay periods you have to withhold any extra taxes you may owe.
You should also realize this applies if you’ve gotten married or divorced. A changing marital status often requires a change in your taxes. Talk with your employer or an accountant to determine what needs to be done to avoid owing the IRS money.
You’ve Realized the Tax Laws Changed
The Trump tax plan undoubtedly impacts all taxpayers. Such changes to tax laws may mean you need to make changes to your withholdings. Doing some research on your own to see how changing tax laws impact you and your finances is a great idea, but it’s best you sit down with your accountant. Accountants know how changing tax laws impact you the most. They also know what you need to do to take advantage of the changes however you can. No matter if you’ll owe money or get money back come tax season, you need to know what you can expect so you can prepare yourself and your finances accordingly.
Don’t let a heavy tax bill sneak up on you. A simple adjustment to your tax withholdings can head disaster off at the pass.