Tax Withholding Tips

Each tax season, you’ll find two main groups of people.  

In the first group, you’ll have individuals who have paid too much in taxes throughout the year and who, thus, get a large refund come tax time. Then, in the second group, there are people who haven’t paid enough in taxes and who find themselves facing a large tax bill and, in some cases, tax penalties. Really, either situation isn’t ideal and can be a sign that you need to adjust your tax withholdings. Obviously, though, the latter situation is infinitely worse, though there are some easy ways to prevent it. 

Review Your Withholdings Regularly  

Tax situations can change rapidly. Just because you got a refund one year doesn’t mean you won’t be facing a large bill the next. Things like changing tax reform, as well as general life changes, such as getting a new job, getting married or divorced, having children, and more can all affect your tax situation.  

For this reason, it’s important to review your withholdings regularly, preferably at the beginning and end of each tax year and ideally with the help of a tax professional. Regular reviews can ensure you adjust your withholdings in a way that always benefits you and your current situation as much as possible.  

What to Do if You’ve Underpaid  

Perhaps you didn’t follow this wise advice or you found it too late, and now you’re staring down a major tax liability. This can happen to anyone, and if it befalls you, don’t panic!  

First of all, know that you have until the actual filing deadline to pay your balance. If you can do that, then you won’t have to worry about interest or most penalties. If you can’t, then you can take action by requesting an installment agreement with the IRS or finding alternate ways, such as a personal loan, to pay what you owe. No matter what, don’t ignore your tax debt. Maintain regular communication with the IRS and try and work something out. Then, take steps to avoid this same situation in the future.  

Ultimately, finding the perfect withholding balance is tough. But, with the right help and some careful thought and planning, it can be done. Remember, though, not to beat yourself up for past mistakes but to simply focus on moving forward and making positive changes.