Charitable Giving, IRS Audit Help, Tax Audit, Tax Audit Help

Adjusting Your W2 Income Tax Withholding

May 2, 2013 - Charitable Giving, IRS Audit Help, Tax Audit, Tax Audit Help

We have just celebrated the end of the “1040 Marathon”. But that does not mean that income tax season is over. Have you filed your return or are you “on extension?” Or maybe you are just going to file your tax return later this year.   This blog is “a day late and a dollar short” for filing 2012 tax returns. But it is right on time for 2013 tax planning!   Even if you are afraid you will owe tax, I do recommend you file your return before April 15th. Especially if you are going to owe tax. When you owe more than $1000 when you file your return, the Internal Revenue Service will assess you a late-filing penalty of 5% per month. That’s 5% of the tax due. The only good news about this is that the maximum penalty is 25%. Well, 25% of $1000 is $250. PLUS the IRS must charge you interest on top of the penalty.   If you think you are going to owe tax and you request an extension of time to file, pay some money with that extension to keep that extension valid. If you don’t pay your tax by April 15th, the IRS must assess that late penalty.   Here’s a tip you can start using right away. If you are self-employed it is up to you to estimate your taxes. You make quarterly estimated tax payments. If you don’t pay enough, and you don’t pay enough on the date the quarterly estimated tax payments are due, you can be assessed a late-payment penalty. This is different from the late-filing penalty I talked about earlier.   If you are an employee, you should have taxes withheld from your paycheck. That income tax withholding is considered paid evenly throughout the year. If you have more withheld in November and December than in the earlier months, your total withholding for the year is still considered paid evenly all through the year.   You can adjust your withholding any time during the year. Does your payroll department restrict how many times they will adjust your paycheck? Just be careful that if you are not taking enough out in the first part of the year, that you don’t run out of paychecks before the end of the year. You want to have enough  withheld to make your total enough to cover your tax bill on April 15th. Once January comes around you are already into the next year.   You may have other income that is taxable, like interest or dividends, rental income or sale of property. You might want to or need to make estimated tax payments. Estimated tax payments are due April 15th, June 15th, September 15th and January 15th. If you want more information on how to estimate your taxes, shoot me an email.   Remember this. Failing to plan is planning to fail. Nobody ever PLANS to pay more than they have to. So keep you eyes open on your own tax situation to keep the IRS out of your wallet.   Always to your lowest legal tax, Nellie T Williams, EA