Most individuals that file taxes consider how they can go about not owing anything and getting a larger refund. With a little planning, it’s possible. It’s all about being proactive about your finances and tax debt. These may seem like little tricks, but they can make a huge difference when it comes time to pay your tax debt. Who wouldn’t want a larger refund check from the federal government? The good news is that anyone can implement these changes. They don’t require a large salary or a big checking account balance.
One of the easiest things you can do to reduce the amount of tax you owe is to change the amount you withhold from your paycheck. Your employer will have you sign a W-4 document every year where you can state how much to withhold. A higher number of dependents will result in a smaller amount of taxes being taken from your weekly check. Having a lower number for withholding purposes will result in a more significant amount of taxes coming from your weekly check.
That means that at the end of the year, those that had a higher amount withheld from their taxes will more than likely receive some, if not all, of that money back based on their tax bracket. There is a chance if they didn’t make other tax adjustments that they will owe money, but it’s less likely. However, those who received the majority of their paycheck with a smaller amount of taxes taken out are more likely to end up having to pay the government back when they file if other adjustments weren’t made.
Not sure about what number to put on your W-4? You can use the Withholding Calculator offered by the IRS to come up with a number right for you and your tax situation. This tool is extremely beneficial if changes occur during the year that can impact your tax situation, such as if your minor child is no longer a dependent that you can claim on your taxes or you get a divorce. These changes could result in a bigger tax bill than you were expecting compared to years prior.
You may have extra income coming into your household that doesn’t have taxes taken out, but counts as part of your income. If there’s an option to have money withheld for taxes from these extra sources of income, you should take advantage of that. For instance, if you receive unemployment benefits, you can either have them pay you the entire amount, or you can have tax withheld from your benefit check. This option is possible for many government benefits, such as disability or Social Security. It’s also possible for your annuity or pension payments.
Not everything will have that option, such as selling stocks, so the best thing you can do for yourself is to talk with a professional accountant or other tax experts. They can advise you on how to handle this income best. It can be a rude awakening to forget about this extra income when you start getting tax forms in the mail to use for your filings. It can be beneficial to consider putting some of this income aside to cover the potential tax bill. Talking with a professional can help you come up with a recommended amount to save.
Another area where people often run afoul of having a larger tax bill than they expect is being self-employed. Having a home business, small business, or working as a freelancer means you are responsible for your taxes. Things like unemployment and Social Security are two areas that most self-employed individuals forget about when it comes to their finances.
People that are considered employees have some of their tax debt taken care of by their employer, and have tax money withheld from their regular check. However, if you’re considered self-employed, you’re responsible for all your taxes. Be sure to pay attention to any business deductions you have to help reduce your tax burden. For example, buying new equipment like a computer or phone can count as business write-offs. In addition, it can be helpful to pay your taxes quarterly instead of taking one large hit at the end of the year.
Another way you can work on reducing the amount of tax debt you owe is to make sure you’re taking advantage of all the deductions you’re eligible for. For instance, if you make charitable donations, such as giving items to Goodwill or writing a check for your community animal shelter, you may be eligible to deduct that from the amount you owe on your taxes. There may be other deductions you can make, so talking with a tax professional can help you maximize your refund.
Another area that can help to reduce the amount you owe when tax time rolls around is filing on time. People that are owed a refund aren’t penalized if they send their tax return in late. There is no fee, and no money will be deducted from the amount they are sent in their refund.
However, if you owe money to the IRS, there is a penalty for sending in your paperwork late. Even if you don’t have the money to pay your tax debt to the IRS right away, it’s in your best interest to get your tax forms in on time. There are options available to you to get an extension, make a payment plan, or find other solution to handle your tax debt now rather than increase the debt from waiting.
Are you struggling with tax debt and don’t really know where you can turn? Let Solvable help you in moving forward with your tax debt. We’ve partnered with other organizations to give you the services you need to learn more about debt, get an evaluation of what you owe, and find solutions that are affordable. Being proactive rather than hiding from your debt will help change your life and your financial future.