Preventing Next Year’s Tax Bill
Published on 4/8/2020
If you’ll be receiving a bill from the IRS instead of a big refund, you’re not alone.
The Government Accountability Office estimates that about 2 in 10 taxpayers will owe money to the IRS.
While it might be too late to do anything about this year’s bill, there are steps you can take now to ensure next year’s tax season treats you better.
Adjust W-4 withholding. Review your W-4. Check the withholding calculator on IRS.gov to figure out if you have the right number of personal allowances on your W-4. After the passing of the new Tax Cuts and Jobs Act, the IRS and U.S. Department of the Treasury changed the withholding guidelines employers use to determine how much income tax to deduct from paychecks. The result was an increase in your paycheck. Those who didn’t adjust the personal allowances on their W-4 accordingly, may have had too little income tax taken out of each paycheck. It’s always a good idea to make adjustments when there is a major life event like marriage or having a child.
Review your tax filing status. Did you select the best tax filing status? The one that will keep the most money in your account? There are five to choose from: single, head of household, married filing separately, married filing jointly and qualified widow. Your filing status determines your tax rate and deduction eligibility.
Do your research. Have you opened accounts that provide tax breaks such as 401(K)s, Individual Retirement Accounts, Health Savings Accounts and 529 accounts, to name a few? Do you know your tax bracket? Don’t be afraid to explore various educational resources to help you make sense of your taxes.