There’s nothing worse than an unexpected tax bill.
Okay, almost nothing worse.
As far as taxes go, however, learning you suddenly owe $50, $500, or even $5,000 isn’t a good feeling. At all.
At minimum, an unanticipated tax bill is a minor inconvenience, but at its worst, it’s a total you simply may not be able to cover. Not only can this lead to fees and penalties for missing the deadline, but it will knock you off your preplanned financial path as you scramble to make ends meet and tighten the belt for months—or year—to come.
We pride ourselves on our track record of helping our clients file error-free tax returns with ease, but your withholding decisions will determine your tax bill, not us!
We may not be able to change your withholding for you, but we can sure teach you how to be a tax withholding pro!
You’re looking for a crash course on tax withholding, and we’ve got it. We’ll cover what, exactly, tax withholding is and then go over tax withholding tips.
Tax withholding is a portion of your wages withheld by your employer and paid directly to the government.
If you’ve earned $1000 base pay for a week’s work, look no further than your paystub to see the withheld pay. You may see some taken out for health insurance, you’ll see some taken out for Social Security, and the rest you’ll see taken out is paid to your state and the IRS.
The amount you withhold is determined based on how you’ve filled out your W-4 when you start a new job. You’re probably familiar with the process: checking information about dependents, your working status, and other basics of your personal or financial situation. Sound familiar?
The result is a consistent total withheld from all the income you receive from that employer. If it’s lower than what you end up actually owing the IRS or your state in income tax, you’ll have to pay a tax bill with your tax return. If you’ve paid more than you end up owing the IRS or your state, you can expect a refund.
Simple enough, right?
If you work for yourself, the rules change—but not by all that much!
You’re still responsible for the taxes you pay, but instead of income tax being withheld from your paychecks by an employer, you’re responsible for estimating and paying your taxes. Self-employed workers also pay their taxes quarterly, though they still file annually.
Whether you’re in business for yourself or part of a bigger company, you don’t want to make withholding mistakes. Nonetheless, millions of taxpayers do each and every year!
While many of these may be minor issues—an underestimated income tax obligation may be effectively erased if a taxpayer has many deductions—you run the risk of facing a tax bill you just can’t deal with all at once.
On the other hand, you may find yourself with a giant refund. And while we all love a nice refund (Trust us, we get it!), you may find yourself looking back at the year before and wondering if you might have needed that $500, $1000, or $5000 more back then, rather than letting it sit with the IRS—interest-free—for months!
Unwelcome tax surprises are unfortunately a lot more common than you think. Before you come to us to file an expert, error-free tax return, upgrade your withholding game. Not only will it help you avoid nasty tax bills, but may also help you turn your tax strategy on its head.
Trust us, your tax refund with thank you.