Make Sure Your Withholding Is Correct This Year . . . The Ins And Outs Of The W-4

Most of you probably already know that getting a large tax refund is not actually a good thing. If you don’t know why, check this out. However, I am pretty sure everyone knows that owing a huge amount of money on April 15th at the tax deadline is a miserable feeling as well. For many people, a huge tax liability at the end of the year can mean that they don’t have enough cash on hand to pay their tax bill in full. Click here to see what to do if that applies to you. The best thing you can do if you are self-employed is to make your estimated tax payments throughout the year based on the amount of income you expect to have. You can consult a CPA for these estimates or you can calculate your tax liability based on tax brackets and form for the current year. However, if you are not self-employed, the best way to make sure you have the right amount of tax withheld is to adjust your W-4.

Many people don’t know what this form is exactly; they just know they fill it out when they start their job and then probably never see it again. Your W-4 is not to be confused with your W-2. Your W-4 is the form your employer gives you at the beginning of each year to determine how much federal withholding you want taken out of your paycheck each pay period. On this form, you enter a number representing how many people you will be claiming on your tax return. If you put a “0” you will have a very high withholding. If you are not married and you have no children, you can generally enter a “1” for one exemption. This will usually get you to the withholding closest to your tax liability. If you are married and have children, your spouse and you should fill out your W-4s together. You need to know how many exemptions each person is claiming so you do not double up and have too much withholding. For instance, there is a line on your W-4 where you can enter a “1” to claim your spouse as well as yourself. However, If your spouse claims his or her own exemption on the W-4, then your withholding will be incorrect when it comes time to file your tax return. I would advise that each spouse claim themselves only and not each other. If you have children, you should discuss which person should claim that child on the W-4 for the year so your combined withholding is accurate.

If you normally itemize your deductions on your tax return, or you are buying a house a during the year and taking out a mortgage which may cause you to itemize if you didn’t used to, then you can use page 2 of the W-4. Page 2 allows you to enter your projected itemized deductions which may also alter your withholding that you should have taken out of your paycheck. Page 2 also offers a worksheet that you can use to determine your withholding if you and your spouse both have jobs, or if you work multiple jobs.

In case you didn’t know, you can also change your withholding any time throughout the year by filling out a new W-4. If you get married (which will change your filing status and combined income), or you have a baby (which will change your exemptions) you may want to change your withholding to account for the change in your tax liability at the end of the year due to these events. You can simply print out a W-4 online and submit it to your employer, or you can request a new form from your employer. Once you submit it, you new withholding amount should be applied to your next pay period.

You can also use the IRS W-4 calculator to decide whether the number of exemptions you currently claim on your W-4 will produce too high or too low of a withholding. You can use this calculator throughout the year to check your withholding and alter your W-4 accordingly.

It is key to keep updating your W-4 throughout the year to coincide with major life events. This way you can give less of your money to the government, interest free, and not have such a large tax due come April 15th. Keep this in mind when filling out your W-4, and leave your questions below!


Do You Need To File An Extension For Your Tax Return? This Is What To Do!

As you probably know, individual tax returns are due by April 15th, 2015 for the 2014 tax year. However, for various reasons you may not always be able to file your tax return by that due date. You should not miss the date and file when you can because you will incur penalties and interest, even if you will get a refund once you file. If you won’t be able to file your return by April 15, you can file an extension which will extend the due date of your return 6 months to October 15th. There are some exceptions to this which we’ll discuss below.

Form 4868 is the form you file to request an extension. This form needs to be submitted no later than April 15th. When you file this form, you need to know your estimated tax liability for the year based on the information you currently have. Then you enter the amount you have already paid either through withholdings or estimated payments. If there is a balance remaining, this is the amount you should send in with your extension. Filing an extension does not mean you don’t pay your balance by April 15. You can still be charged interest and penalties if you do not pay your estimated balance due by April 15. You do not need to include a reason for why you need the extension. When you submit your tax return (by October 15), do not attach Form 4868 to your return because the IRS will already have record of it as long as you submitted it correctly. The IRS will only contact you if your request for extension is denied. If you don’t hear anything from the IRS after you file your extension, then that is completely normal so don’t worry.

If you are a U.S. citizen that is outside of the country when your tax return is due, you automatically are allowed two extra months to file your return (June 15) without filing an extension. To be considered outside the country, you must live outside of the United States (and Puerto Rico) and you main place of work must be outside of the country, or you are in the military stationed outside of the United States. Even if you are physically present in the U.S. at the time the return is due, you are still considered out of the country if either of those situations apply to you. If you will need more than the extra two months, you can mark a box on Form 4868 to request an additional four months to file.

There are multiple ways to make this payment. You can pay online using Direct Pay, the Electronic Federal Tax Payment System, or a debit or credit card, and you can also pay over the phone. You can also send a check. Be sure you send it to the correct filing address based on where you live to avoid complications.

If you don’t think you’ll be able to file your refund on time, be sure to file that extension! You’ll be happy you did when you don’t get an additional bill for penalties and interest!

Estimated Payments – Keep 2015 In Mind When Filing 2014 Taxes

If you don’t already know what estimated tax payments are, they are payments you make to the government based on what you think your tax liability will be for that tax year. Estimated tax payments are normally due 4 times throughout the year. For example, for the 2015 tax year, you should submit estimated payments on April 15, 2015, June 15, 2015, September 15, 2015, and January 15, 2016. You do not have to make your January 15 estimated payment if you file your tax return by February 1, 2016 and pay the entire balance due with your tax return. While I am discussing the 2015 tax year, these rules regarding your estimated payments have been fairly consistent over the years, and have not changed significantly.

If you do not receive a W-2, for example, if you are self-employed, an S-Corp shareholder, a partner in a partnership, etc., then you may have to submit estimated tax payments throughout the year. If you receive a W-2, you may not need to make estimated payments because you can adjust the amount of withholding so it is already taken care of when you receive your paycheck.

Estimated tax payments are important to consider because if you do not pay in enough throughout the year, the IRS could charge you a penalty when you submit your tax return. A penalty can be charged for a variety of reasons. The two most common are if you fail to pay your estimated payments or if you pay them after the date they were due. It is still possible to get a penalty even if you are receiving a refund. But how do you know what your estimated payments are or should be?

When you file your tax return for the 2014 tax year, estimated payments for the 2015 tax year will be calculated based on what your tax liability was for the 2014 tax year. For 2015, you can use the estimated tax worksheet to calculate what estimated payments you should be making. If you pay a CPA to file your taxes, you should make sure to inform them if your income, withholding, or deductions could be changing in the next tax year. For instance, if you are switching jobs and will be earning a higher salary, that could bump up your income during the next year. If you are having a baby in the next year, that could bump up your exemptions which reduces your tax. All of these factors play in to the amount that will be calculated for your estimated tax liability the next year, so it is important to take all of these things into consideration.

There are instances when you do not have to pay estimated tax. Per the IRS, you do not have to make estimated tax payments if you had zero tax liability in the prior year, that prior year consisted of 12 months, and you were a U.S citizen or resident for that whole year. If you expect to owe $1,000 in taxes in the next year, generally you need to make estimated payments.  There are also a few different ways to pay your estimated payments. One way is by mailing in your check or money order with a voucher to your designated IRS location. Click here to see where you should send your payments. You can also pay via phone using a credit card or debit card. Lastly, you can use Direct Pay through the IRS and pay online.

If you need help deciding what your estimated payment should be or figuring out what your 2015 tax will be, please leave a comment below or shoot me an email at! Thanks for reading!