It’s never pleasant to discover that you owe the IRS money, especially if it's more than anticipated. The best way to prevent this from happening is to periodically assess your withholding with your tax advisor. If you unexpectedly owed or received a larger-than-expected refund last tax season, it might be time for an adjustment.
This isn’t just about minimizing what you owe; it’s also about making sure you aren’t giving the government a tax-free loan of your money. With the IRS's online withholding calculator, you can easily review and adjust your paycheck withholding to align with any recent tax law changes. These changes may include shifts in itemized deductions, child credits, dependent credits, or the elimination of dependent exemptions.
The IRS specifically recommends checking your withholding if you’ve recently:
Adjusted withholding in the last year, especially later in the year
Paid additional tax when filing last
Received an unexpectedly large or small refund
Experienced life changes such as marriage, divorce, or having a child
Purchased a home
Had fluctuations in income
Adjusting your withholding is simple; just file a new Form W-4 with your employer. Changes typically take effect within a few weeks. For those making estimated tax payments, adjustments can be made each time a payment is scheduled.
Regularly updating your withholding can make a significant difference in your finances. For guidance on managing your withholding, reach out to Verity CPAs at info@verity.cpa or 808.546.5026. Let’s work together to keep your tax surprises to a minimum.