Now that tax season is over, you’re thinking whew, that’s done…. I don’t have to deal with this for another 12 months. Well, let’s talk about that. Yes, tax season is over, but how did your taxes affect you this year? Did you have a large refund and have a little nest egg or did you owe the IRS or State and wondering how you are going to pay for these taxes owed?
Most times, so much of your money ends up in the government’s pocket. It’s wise to consider legitimate ways of keeping more of it in your own pocket. Here are some tips to help you plan for a better experience next April 15th.
- Check your federal and state forms mid-year and at year end
- Changing the amount of your tax withholding is as simple as filing a new Form W-4 with your employer.
- A key way to tell if you need to have more or less taxes come out of your check is if you have a large or small refund or you owe the IRS and State at tax time. If you owe the IRS and State for taxes, that is a key sign that there is NOT enough being deducted from your check. Most people change their withholding status at some point in the year to have less taxes come out of their check, e.g., 6 months on/6 months off or holiday season being tax exempt. Tax payers forget to change their forms back and cry at tax time when they owe. Adjust your tax withholding if you received a large tax refund or had a sizable amount due when you filed your last tax return.
- Allow for higher tax on IRA/401K distributions and withdrawals
- When taking distributions or withdrawals from your Roth IRA or 401K, allow the retirement company to tax that amount 20% and not 10% or 0%. Allowing those funds to be taxed at a higher percentage will protect the tax payer at year-end from being taxed again at income tax time.
- Reevaluate eligibility of Child Tax Credit Limit
- If your child will turn 17 this tax year, you’ll lose the child tax credit. The dependent will still serve as a dependent credit but the tax credit received will be based on the tax payer’s adjusted gross income (AGI). Losing that much of a write-off can cause havoc on your tax bill.
- Start a Roth IRA or 401K through your employer will decrease your taxable income
- In layman’s terms, starting retirement contributions will allow you to bring more money home in your paycheck by not being taxed as high on your pay check.
- Take care of unpaid obligations
- If you have unpaid obligations, such as overdue child support, state income tax, or student loans, part or all of your income tax refund may be redirected to pay the debt. The Treasury Department’s Bureau of Fiscal Service runs the offset program, and it is this agency that will send you a notice if an offset occurs. The notice will list the original refund and offset amounts, plus the name and contact information of the agency that received the payment.