Just because it is summertime, it doesn’t mean that you should shelve any thoughts about next year’s tax return. The choices made throughout the year can and will affect how much money you get back from the IRS or how much you will have to pay. A large refund sounds inviting, but not at the expense of a struggling budget over the last 12 months.
4 Tips to Balance Your Tax Obligations
Estimated Tax – Help with Liabilities -The IRS uses estimated taxes to help taxpayers who will owe money come tax time. If you earn income that is not taxed (self-employment, rent, interest or dividends) and you expect to owe $1,000 or more to the IRS, you may have to pay estimated taxes quarterly throughout the year. The IRS provides a worksheet (Form 1040-ES) to help taxpayers calculate their estimated tax. Paying this amount quarterly will help budget liabilities throughout the year rather than leaving a taxpayer to come up with a large sum of cash come April. If you earn money that does not have taxes taken out at the point of exchange, talk to your CPA about whether or not you qualify for estimated tax.
New Job – Employee’s Withholding Allowance Certificate – This certificate, better known as a W-4, is filled out at the start of a new job. The human resources department will have employees fill out the form prior to their first paycheck. This form helps determine how much federal income tax is to be withheld every pay period. If you are ever unsure how much to claim, the IRS provides a useful calculator directly on their website, IRS.com, to help determine the best way to fill out the form. Public Accounting services will also answer any questions regarding tax preparation and W-4 claims.
Adjust W-4 According to Life Changes – As life changes, so do tax obligations. The W-4 is filled out when first employed, but is not set in stone. Contact the human resources department to update the form when life changes. Examples of such changes are marriage, birth of a child, or buying a new home. If you need to have more money at your disposal come paycheck time, you can increase the amount of dependents claimed on the W-4. Taxpayers who have larger liabilities come tax time may use the forms to increase the withholding amount. This action will take out more taxes each pay period to help balance the end result.
Change of Circumstance – Associated with the Premium Tax Credit – For those taxpayers who have acquired health insurance through the Health Insurance Marketplace, the premium tax credit is made available to help make insurance premiums more affordable. The income-based qualification credit uses personal information to help estimate the amount of credit available to each taxpayer. It is imperative for qualified recipients to report changes in circumstances (i.e. changes in income or family size). Reporting changes will help to maintain the proper amount of credit issued. Receiving too much or too little will affect the amount of tax refund or liability due.
Business Account Systems works with clients year round to help plan for tax season. It is important to consider the tax effects of life changes anytime of the year. Call our office and find out more about our tax services and planning help that will work to save money or increase a tax refund. Public Accountants are a great investment for small businesses and individual taxes.