With April 15th now behind us, were you surprised by a large amount owed or a large refund? In some cases large amounts owed or refunded are a result of the withholding choices each employee chooses at the beginning of the year to be withheld from their paychecks.
You still have a chance to edit your withholding preferences in order to avoid any surprises next tax season. The IRS offers a simple tool to help determine the best withholding option for your level of income: IRS Withholding Calculator.
All you need to complete this tool is your most recent paystub and about 5 minutes. The calculator will then tell you how much income tax you are projected to owe this year and how much will be withheld from your paystub. The difference being the amount you owe or are refunded during next tax season. The calculator will recommend the number of allowances to choose on your W-4 form for the year, showing you how close to ‘breaking-even’ you may be for your 2015 taxes.
Adjusting your withholding may help you avoid having to write such as large check every April, or you can enjoy receiving more each pay period instead of waiting until April for a tax refund.
Instead of receiving a large refund once a year, have you considered increasing your 401k contribution each month? This way your “refund” will increase as the earnings compound over time while also lowering your current taxable income. For information on contribution limits for 2015 please visit our blog post on this topic.
While it is a good idea for everyone to check their withholding status at the beginning of each year, there are also a few other times that could cause changes in your withholding choices:
- Getting married
- Getting divorced
- Having a baby
- Starting a new job with a change in salary
- Losing your job and therefore decreasing your yearly earnings
Please contact one of our Certified Financial Planners for help with savings strategies and tax planning as you experience these financial altering events listed.
Photo credit: Tax Credits
