If you received a large tax refund or had to pay a large amount of money when you filed your taxes, your tax withholdings may be off. While this may not seem like a huge deal, it can be. First, adjusting your tax withholdings can help you to receive more money out of your paychecks each month if you received a large refund. When you receive a large refund, you are giving your money to the Internal Revenue Service, or IRS, to hold interest-free until you file. Changing your withhold switches this up so you get your money as you earn it. If you received a large tax bill around tax time, switching up your tax withholding triggers more money to be taken out of your paycheck each pay period, so you should not have a large bill suddenly due. This helps prevent a surprise and helps make your tax payments more affordable. Here are a few of the ways that tax services can assist you if you receive either a large tax refund or large tax bill when you file your taxes.
Completing a Tax Estimate
If you received a large refund last year or wound up owing a significant amount of money, there is a good chance that your tax withholdings are off. This means that you are not claiming the correct amount of deductions, causing your employer to withhold either too much money or too little money. However, this is not always the case. In some instances, you may have had life changes that occurred during the year that caused your tax situation to be different than normal. You may have become unemployed and only worked part of the year, lowering your income, causing you to get more money back. Or you may have inherited money that left you with a large tax bill. A tax service can complete a tax estimate and determine what your withholdings should be, ensuring you claim the correct amount of deductions.
Changing Your Withholding By Filing Out a W-4
If you have been claiming the incorrect number of deductions on your withholiding sheet that is filed with your employer, a tax service will complete a W-4 form for you. This is the form that you can then submit to your employer to change your federal and state tax withholding rate. You cannot simply tell your employer you want to change it. They have to have this form filled out and on file at any given time. It may take a couple of pay periods for the change to be active. If it has been longer than three pay periods and your withholding rates have not changed, be sure to follow up with your employer.
Ideally, you want to have a zero balance on your taxes when you file. However, getting this exactly is hard to do. A tax service can look over your information and perform a tax estimate to help determine what your current tax withholdings should be. While it may not get you to a zero balance, it will help ensure that you are not receiving a large refund or bill when tax season rolls around this year. Contact a CPA, such as from Balkcom Pearsall & Parrish CPA's PA, for more help.