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.

Wedding Bells and Taxes

Are you getting married in the near future? Or, maybe you’ve already tied the knot just recently. Whatever the case, you should know that making this major life step affects your taxes in major ways, and one of the first things you’ll need to check up on is your tax withholdings.  

The reason this is important is because, when you get married, more often than not, your income tax liability changes due to the sudden addition of your spouse’s income or of your spouse in general. This change may mean you get to withhold more or less, depending on the specifics of your situation, but, either way,it’s important to adjust your withholdings accordingly so that you don’t end up paying too much or not enough on your taxes.   

If you’re not sure how your spouse’s income, or, if your spouse doesn’t have an income, your marriage will affect your taxes, then speak to your workplace’s human resources department or to your financial adviser to learn more and make sure you’re doing everything correctly.

Another thing that you may want to think about if you’re getting married or have recently done so and have a spouse or soon-to-be-spouse who doesn’t work is opening a spousal IRA. When you have a non-working spouse and have filed as married filing jointly, this great option can help you both to begin saving for your future together.

Of course, the decision of whether or not to file jointly or separately is a whole other ball of wax altogether, and what you should do will vary greatly depending on the specifics of your situation. For that reason and because you’re going through such a major change when you marry, it’s always smart to check in with your financial adviser (or to find one!) during this and any other times of transition that affect you financially.