Wondering why you have so many taxes this year? You want to ensure that you do not have a big tax bill - or any bill at all - when you file your income taxes
Judging by the amount of the average American has retained more of his salary, we are afraid of death because of the IRS, even the smallest amount at tax time.
This is a bit odd, considering the average American does not seem that worried because of the money to other creditors. There must be something about the IRS that inspires fear and awe in the heart of the taxpayers.
overpay by thousands of dollars "just to be safe" is not the answer. The average tax refund is about $ 3,000.
That's a lot of money to be tied up all year, so you could put it to better use.
You would not overpay your electricity bill by that much and then you really marked when you got excess return.
Why do this with your taxes?
causes underpayment of income tax
to avoid owing the IRS money, it is important to know why you might get in this situation
Here are 5 of the most common reasons people end up owing additional tax :.
1. Too few retained their salary
can give you a fair increase by changing your W-4 form with your employer.
However, if you do this without careful planning, you might be setting yourself up for an unpleasant surprise year-end.
2. extra income not subject to withholding tax
If you sell shares, for example, you can have more income than usual - and a tax bill more . Even unemployment benefits may increase your tax bill.
3. Self-employment tax
For many small business owners, self-employment tax is a much greater burden than income taxes.
4. Difficulty making quarterly estimated taxes
If you have non-wage income important, you usually make quarterly estimated payments.
However, this is easier said than done, especially when people feel like they are on the way financial survival plan most of the time.
5. Changes in your income tax return
Children grow up and leave, and suddenly you do not claim them as dependents.
You refinance your home at a lower interest rate. This is fine, but your mortgage interest deduction may have been cut in half.
Even changes in the tax code can make a difference in your tax bill. If you do not adjust your withholding when things change, you need money.
What you should do
The solution to the problem depends on the cause.
refigure your withholding wages
If you have just too little withheld from your paycheck, you can create a new Form W-4 via the W-section 4 form as next Year main tab in TaxAct.
If you have simple changes to your return, as fewer dependents, you can enter the modifications in this section and TaxAct determine how you should file.
Take the new W-4 form to payroll from your employer. Do not send to the IRS.
You withholding tax on other income
If you have non-wage income, you might be able to have tax withheld voluntarily.
for example, you can have 10% of your unemployment benefits withheld for taxes. This may hurt a little now, but it is much less painful than a big tax bill next spring.
To have the withholding tax on government payments, including Social Security benefits or unemployment benefits, complete Form W-4V from the IRS website and send it to payer.
do not send to the IRS. You can have 7%, 10%, 15% or 25% retained on most government payments.
You can not have 10% withheld from unemployment payments.
If you receive pension or annuity payments, adjust your withholding tax on income on the W-4P form, available on the IRS website.
If you do not say how an annuity payer to withhold tax on income, the IRS generally requires them to retain as if you are married and have three dependency exemptions.
tax plan your small business
self-employed workers have special challenges that pay enough taxes on income for the year.
Their income can be sporadic, and it can be difficult to know how much they will need after business deductions.
and nobody deducted tax on their salary. Naturally it is more difficult to find money for the taxes to do deduct from the wages of a first person.
The only way independent taxpayers can be sure they set aside enough money for taxes is to keep good records throughout the year.
Once a quarter, calculate your net income and estimate the amount you owe. Do not forget the self-employment tax.
If you have trouble making your estimated tax payments, consider opening another bank account only for taxes.
Every time you deposit money into your business checking account, transfer the appropriate amount to the tax account.
Next, consider the untouchable money for anything other than taxes.
refigure your tax liability and withholding necessary
Ensure that you 're having enough tax withheld or paid estimated taxes is never finished task
Whenever your situation changes -. you get married or divorced, you take on an independent project, for example - recalculate your income if necessary and go through the section W-4 in the main tab next year in TaxAct again.
is a little more work than simply paying too much or hoping for the best, but it pays off by giving you more peace of mind about your status with the IRS.
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