Best Use of Tax Refund

Clark Howard has good ideas to share on how to use your tax refund and make it work best for you. He also recommends you adjust your withholding this year so you are not letting the government have a tax free loan from you. Watch this video to learn more from Clark Howard who always has our backs!

Make Your Tax Refund Count by Clark Howard

Check Your Paycheck

I recommend all employers require their employees to complete a new W-4 form for federal withholding taxes and to make this information available to them. 

The IRS encourages everyone to use the Withholding Calculator to perform a quick “Paycheck Checkup”. This is important because of the recent tax law for 2018. 

There are several reasons to check your withholding:

• You protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time next year.
• With the average refund exceeded $2,800, you may prefer to have less withheld up front and receive more in your paychecks.

The IRS has a Withholding Calculator to assist taxpayers to complete the new W-4 form that has been revised for the new tax law. The calculator will ask you to estimate values of your 2018 income, the number of children you will claim for the Child Tax Credit and Earned Income Tax Credit, and other items that will affect your 2018 taxes. This process will take a few minutes.

• Gather your most recent pay stubs.
• Have your most recent income tax return handy; a copy of your completed Form 1040 will help you estimate your 2018 income and other characteristics to speed the process.
• Keep in mind that the Calculator’s results will only be as accurate as the information you provide.  If your circumstances change during the year, come back to this Calculator to make sure that your withholding is still correct.
• The Withholding Calculator does not ask you to provide sensitive personally-identifiable information like your name, Social Security number, address or bank account numbers. The IRS does not save or record the information you enter on the Calculator.

IMPORTANT NOTE: This Withholding Calculator works for most taxpayers. People with more complex tax situations should use the instructions in Publication 505, Tax Withholding and Estimated Tax, expected to be updated in early spring. This includes taxpayers who owe self-employment tax, alternative minimum tax, the tax on unearned income of dependents or certain other taxes, and people with long-term capital gains or qualified dividends.

WITHHOLDING CALCULATOR

To Change Your Withholding:

• Use your results from this Calculator to help you complete a new Form W-4, Employee’s Withholding Allowance Certificate, and
• Submit the completed Form to your employer as soon as possible. Withholding takes place throughout the year, so it’s better to take this step as soon as possible.

Special Note for 2019:  If you follow the recommendations at the end of this Calculator and change your withholding for 2018, the IRS reminds you to be sure to recheck your withholding at the start of 2019. This is especially important if you reduce your withholding sometime during 2018. A mid-year withholding change in 2018 may have a different full-year impact in 2019. So if you do not file a new Form W-4 for 2019, your withholding might be higher or lower than you intend. To help protect against having too little withheld in 2019, we encourage checking your withholding again early in 2019.

If you have additional questions about your withholding, consult your tax advisor.

Protection After IRS Tax Records Breach

Clark Howard has our backs again with his article, 3Ways to Protect Yourself After the IRS Tax Records Breach. Risk for Identify Theft is growing rapidly and you can take steps to protect yourself.

1. Do a credit freeze
2. Beware of reload scams
3. Reduce your withholding at work

Reducing your withholding at work is recommended if you are receiving a tax refund each year. Essentially you are giving the government an interest free loan. THEY get to use your money all year long! Reduce your withholding to the point you estimate you will break even when you file your taxes. Estimating tax liabilities and adjusting withholding accordingly is tax planning at its finest. I highly recommend all tax payers do proper tax planning every year.

 

Almost 2014 – Time to Check Your Withholding

With a new tax year approaching, it is a good time to review your current withholding, to determine if you need to make adjustments now, to be effective with your first paycheck for 2014. Making changes to your withholding requires you to complete a new W-4 Federal Employee Withholding Allowance Certificate and your applicable state and local equivalent withholding form(s). The completed forms should be submitted to your payroll department prior to your last pay period of the calendar year, for them to have sufficient time to update your records prior to the first payroll of the new year.

Start off the new year with your finances in order. Remember to review your withholding again when you have a change in your marital status, dependents, deductions, or income during the year.

Summer Job Tax Tips – Put Kids to Work!

Students with summer jobs can be exempt from federal income tax withholding if they did not owe any tax last year and do not expect to owe any for 2013. Students with unearned income of $350 or less and total income not greater than $6,100 can be exempt from federal income tax withholding. If their investment income is more than $350, the total income cannot exceed $1,000 to be exempt from federal income tax withholding.

Employers re-hiring summer students claiming exemption need to have employees complete new W-4 forms. The W-4 forms completed last year cannot be re-used.

Sole proprietors or husband-wife partnerships can hire their kids under the age of 18 and not owe any FICA tax. The same rules apply to a one-person LLC that elects to be disregarded for tax purposes. Federal unemployment tax is not due on kids’ salaries until they hit the age of 21.

For those kids branching outside the family business to earn their money, read about these tax rules in the article, “Kids and Summer Jobs: What to Know About Taxes“,  from Fox Business by Bonnie Lee, a fellow Enrolled Agent.

Plan a great summer with these great tax tips!

Give Yourself a Raise!

paycheck (Photo credit: owaief89)

A raise sounds good, right? If you got a large tax refund and anticipate 2012 will be similar to your 2011 tax situation, you can give yourself a raise by adjusting your withholding to meet your tax liability. This puts your overpayment of taxes in your paycheck every payday rather than waiting for a tax refund check next April when you file your tax return. No need to let the government use your money all year.

Kiplinger provides you with the simple steps in their recent article, How to Adjust Your Tax Withholding – Kiplinger.

Every person’s tax situation is different and can vary from year to year. If you need help, seek tax planning advice from a professional to ensure you are meeting your tax liability without overpaying.

Enjoy your raise! You deserve it!