As January comes to a close, and we review our W-2s from last year, paying taxes comes to mind.
Many may receive a tax refund, while others struggle to put together money needed to pay taxes to the IRS and the South Carolina Department of Revenue.
If you owe the IRS and/or the South Carolina Department of Revenue money, you should know that to some extent, you have the power to determine whether you want to pay your taxes on April 15th, or receive a refund.
The determination of how much money is deducted from your paycheck is based upon what you elected on your W4 form. What many do not know is that your election is not a one time decision, and you are able to increase it or decrease your elections depending upon your needs.
Tips to Ease Your Tax Frustration
Determine Your Tax Liability. You need to determine your total tax liability as accurately as possible in order to better judge how much money you will owe the government. If you receive a salary, the task is a little bit easier; if you work hourly, engage in seasonal work, or are self-employed, estimating your tax liability will be more challenging.
Calculating your tax liability can be done through three ways:
- Using Online Paycheck Calculators. A simple Internet search can yield many online paycheck calculators. Many of these websites require you to identify the state where you are located, the number of allowances claimed on your W4, and your annual income; with this information, your total federal tax liability can be determined for the year. This is a simple method, but not perfect, so the taxable amount may be different than the amount actually owed.
- The IRS Tax Withholding Calculator. Located on the IRS website, this calculator is most useful for individuals with complex tax situations. It will inquire about your eligibility for tax credits for child and dependent care or the amount of contributions to a tax-deferred retirement plan or health savings account (HSA) or how much federal taxes have been withheld in your last salary. Depending on your responses, the calculator will provide you the amount of taxes to be paid at the end of the year, the amount already paid during the year, and the amount still to be paid or to be refunded.
- Sample Tax Return. If you have tax software available and you know how to complete a form 1040 by yourself, then you can fill out a sample tax return, this simple task can provide you the most accurate determination of how much your end of year tax liability. The inaccuracy though may come with the date of the software, as you could end up computing your current tax liability using the last year’s computations. A little online research can provide the information on the amendments to the tax liabilities deductions. Filling out a sample form is also helpful for those who itemize deductions, like homeowners and self-employed individuals.
- Determination of Withholding Tax. After using these online calculators, you will be able to determine the amount of federal taxes owed. Once you determine this amount, you can then determine the amount you withhold each pay period through December 31. This is done by dividing your total tax liability for the year with the number of paychecks received and comparing the monthly amount withheld from your paycheck at the start of the year.
Don’t forget when determining your federal tax calculations, your calculations may be different if you are are an hourly or seasonal worker, hold multiple jobs, or if you itemize on your tax return.
Tax questions? If you or someone you know needs tax help, contact the tax attorney at the Strom Law Firm, LLC today for a free consultation to discuss the facts of your case.