As summer winds down, it’s a great time for a tax checkup to ensure you’re prepared for tax season. At Torkelson & Associates CPA, we want to help you avoid any surprises when you file your taxes next year. The IRS has recently encouraged taxpayers to assess their tax withholding and payments, and we’re here to guide you through the process.
Why You Should Care
While many taxpayers look forward to receiving a refund, a significant number find themselves facing unexpected tax bills. This often happens due to changes in employment or personal circumstances that go unaccounted for throughout the year. If you’ve experienced any life changes—like starting a side hustle, switching jobs, or welcoming a new family member—it’s crucial to reassess your tax situation now.
Who Needs to Be Extra Cautious?
If you fall into one of these categories, you should take particular care with your tax planning:
- Gig Economy Workers: If you rely on platforms for income, ensure you’re making the necessary estimated tax payments.
- Side Hustlers: Any additional income streams can complicate your tax picture, so make adjustments accordingly.
- Self-Employed Individuals: Without automatic withholding, you need to actively manage your tax payments.
The Pay-As-You-Go System
Remember, the federal tax system operates on a pay-as-you-go basis. This means taxes are collected as you earn income, either through withholding from your paycheck or through estimated payments for self-employed individuals. Many taxpayers receive a refund when too much tax has been withheld, while others may face penalties for underpayment.
Using the IRS Tax Withholding Estimator
To help you navigate your tax situation, the IRS offers a handy Tax Withholding Estimator tool on their website. Here’s how it can benefit you:
- Estimate Your Federal Income Tax Withholding: Get a clear picture of how much you should be withholding based on your current income.
- Understand Your Financial Impact: See how changes in withholding affect your potential refund or tax bill.
- Make Informed Decisions: Choose a withholding amount that aligns with your financial goals.
Adjusting Your Withholding
If the estimator indicates that a change is necessary, you can easily adjust your withholding by submitting a new Form W-4 to your employer or pension provider. For those making estimated payments, be sure to recalibrate based on your new calculations.
When to Use the Estimator
It’s advisable to revisit your withholding if you’ve experienced any major life changes, such as:
- Starting a new job
- Significant income changes
- Marriage
- Childbirth or adoption
- Purchasing a new home
For More Complex Situations
If your tax situation is more complicated—such as owing Alternative Minimum Tax or having long-term capital gains—consider consulting with a tax professional. The IRS Publication 505 offers detailed guidance, but personalized advice can ensure you’re making the right choices.
Additional Resources
For further information, check out these resources:
Final Thoughts
At Torkelson & Associates CPA, we’re committed to helping you navigate your tax obligations smoothly. Performing a mid-year tax checkup can save you time, stress, and money down the road. If you have any questions or need assistance with your tax planning, don’t hesitate to reach out to us!
Stay ahead of your tax responsibilities and enjoy the rest of your summer!