I feel like I have written a lot about tax-related matters recently in these blogs, and I suppose that means the tax-season hangover must have abated and I can once again stomach looking forward to the beginning of the next one. I am not the only one who should be doing this, though, as everyone can benefit by spending some time considering what their tax picture will look like when it comes time to file again.
Granted, for many this is an exercise that can be done in under 15 seconds. If your life and financial situations are much the same as they were last year, and you are happy with the final numbers on your tax return, then there is no reason to make any significant changes before it comes time to complete the forms again.
For those who are in different situations, however, spending a little more time on this mental exercise can help prevent a surprise bill in seven to nine months. And remember that this does not only have to be a change in your job situation. If you get married, divorced, have a kid, start going to school, or have a kid beginning college, these could all come with tax considerations that may lead to a significant change in your taxes.
However, this is also something worth paying attention to if you expect your income to change significantly from prior years. Entering new tax brackets is certainly not a bad thing (it is a rare situation where one should feel bad about making more money), but something that warrants being aware of its implications. This can be especially true for those who are self-employed or otherwise acquire much of their income without taxes already being withheld.
Thankfully, the IRS has a pretty strong tool to help one estimate your tax bill with its withholding calculator that you can check out at
https://apps.irs.gov/app/withholdingcalculator/. This will bring you through questions around both life events and income that will largely determine your tax picture. Knowing how much you have to pay now can help you prepare for the bill and prevent scrambling to come up with the money come April. And that preparation needs be no more intense than changing your withholding on your paycheck. To find out just how to do that, talk to whoever handles your payroll, but I promise that it is easier than you fear.
Beyond those concerns, it is not only those who can expect a larger tax bill that may want to pay attention to this area. If you are used to getting a large tax refund – and expect another – but are still paying out the same amount of tax money from your paycheck, maybe you want to adjust your withholding and keep more of that money. This may not end up being a huge amount, but it could serve you better in your bank account than the government’s.
No matter where you live on this spectrum, at least now you can’t say that I did not put out a warning about these issues before it is too late. And it may be the only one you get, for I swear that I do have other interests beyond taxes, even if it doesn’t always seem that way.
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To ensure we don't make the folks at the IRS ornery, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein.