With the summer of 2012 coming to a close, it’s a good time to look at your tax payments you’ve made this year and see if you’re likely to accrue a tax liability for this year or not.
You should act soon to adjust yor tax withholding to bring the taxes you must pay closer to what you actually owe. If you’re ahead of schedule in terms of payments for the year, then you can reduce your withholding and actually keep more of your paycheck for the rest of the year.
Most people have taxes withheld from each paycheck or pay taxes on a quarterly basis through estimated tax payments. Each year millions of American workers have far more taxes withheld from their pay than is required. Many people anxiously wait for their tax refunds to make major purchases or pay their financial obligations. It is best, however, to not tie major financial decisions to your anticipated refund — especially if you owe back taxes for previous years, because the IRS is simply going to keep that refund, even if you filed an Offer in Compromise this year.
Here is some information to help bring the taxes you pay during the year closer to what you will actually owe when you file your tax return.
Employees
New Job? When you start a new job your employer will ask you to complete Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use this form to figure the amount of federal income tax to withhold from your paychecks. Be sure to complete the Form W-4 accurately.
Life Event? You may want to change your Form W-4 when certain life events happen to you during the year. Examples of events in your life that can change the amount of taxes you owe include a change in your marital status, the birth of a child, getting or losing a job, and purchasing a home. Keep your Form W-4 up-to-date.
You typically can submit a new Form W–4 at anytime you wish to change the number of your withholding allowances. However, if your life event results in the need to decrease your withholding allowances or changes your marital status from married to single, you must give your employer a new Form W-4 within 10 days of that life event.
If you need help determining how many exemptions to claim on your new W-4, feel free to get in touch with me.
Self-Employed
Form 1040-ES: If you are self-employed and expect to owe a thousand dollars or more in taxes for the year, then you normally must make estimated tax payments to pay your income tax, Social Security and Medicare taxes. You can use the worksheet in Form 1040-ES, Estimated Tax for Individuals, to find out if you are required to pay estimated tax on a quarterly basis. Remember to make estimated payments to avoid owing taxes at tax time.
