Still Time to Act to Avoid Surprises at Income
Tax Returns Filing Time
Even though only a few
months remain in 2014, you still have time to take action!
Not having a
sufficient amount of tax withholding from your payroll can result in owing more
taxes than you expect when your income tax returns are filed. You should take steps now to avoid owing more taxes.
Having too much tax
withheld from your payroll leaves you with less net “take-home” pay, but will
be refunded to you if it is in excess of your tax liability when you file your
income tax returns. This is commonly
known as your “tax refund”.
Here are some actions
you can take to bring the taxes you pay in advance closer to what you’ll owe
when you file your tax return:
Adjust your withholding.
If you’re an employee and you think that your
tax withholding amount will fall short of your total 2014 tax liability, you
may be able to avoid an unexpected tax liability balance due when you file your
2014 income tax returns by increasing your federal and state payroll tax withholding
amount with your employer.
If you are having too much tax withheld at
this time, reducing your withholding amount may result in a higher net payroll.
Complete an updated Form W-4, Employee's
Withholding Allowance Certificate with the human resources specialist for your employer.
Enter the additional dollar amount you want withheld from each paycheck until
the end of the year on Line 6 of the Form W-4. You may also choose to decrease
your withholding allowances on line 5 to have additional tax withholdings. You can have less tax withheld from your
payroll by increasing your withholding allowances on line 5.
Change taxes with life events. You may need to change your tax
withholding amount or allowances when certain life events take place. A change in your marital
status or the birth of a child can affect the amount of taxes you owe. When these
life events happen you should submit an updated Form W–4 with your employer or
change the amounts of your estimated tax payments if you are self employed.
Be accurate on your W-4. When you start a new job and complete Form W-4 with the human resources specialist for your
employer, it is important to accurately complete the form. Claiming too many withholding allowances on
line 5 results in less tax withholding from your payrolls and subsequently you
may not fulfill your tax liabilities and may owe a tax balance due when your
income tax returns are filed. Not
claiming enough allowances is not good either. The result is too much tax paid
into the federal or state systems and less in your net payroll to meet your
life expenses. Special rules apply if you work two jobs or you claim other tax
credits on your tax return.
Pay estimated tax if required. If you receive income that’s not
subject to payroll tax withholding, you may need to make quarterly estimated tax payments. This includes various income sources
such as self-employment, interests, rental income and many others. If you
expect to owe a thousand dollars or more in tax liabilities, and meet other
conditions, you may need to make estimated tax payments to avoid owing
additional taxes and penalties when your income tax returns are filed.
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