28 Apr How to avoid tax return surprises
Q. I owed $6,000 in taxes this year, so I know I can take out more money from each paycheck so I don’t have to owe next year. How can I calculate how much extra I should have them take out, or is it just simple division?
A. It’s smart to plan ahead.
The easiest way to achieve your goal of $6,000 in additional tax withholding is simple division, said Steven Gallo, a certified public accountant with U.S. Financial Services in Fairfield.
“Divide the $6,000 by the remaining pay periods and ask your HR department to increase your withholding by that amount,” he said. “Don’t forget to change your withholding amount effective for the first of next year.”
But there are times when simple division is too simple.
You’ll need to ask yourself some questions, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.
Such as: Did you have any non-recurring or unusual items in your 2014 tax return that resulted in you owing $6,000 at the end of the year? Did you have a large capital gain or receive a larger-than-normal cash bonus? Did you buy a house later in 2014 so you had lower itemized deductions than you will have in 2015?
“If the reader’s tax situation is likely to be significantly different than 2014, the first step for them is to run a tax projection for 2015,” Maye said.
One way to run a 2015 tax projection would be to use tax preparation software to project your 2015 tax liability. The program will allow you to modify your income and deductions as needed to project your 2015 tax liability, Maye said.
“However, if the reader’s 2014 situation is likely to mirror their 2015 tax situation, it becomes simpler, i.e., they need to have an incremental $500 per month withheld from their paycheck for federal taxes,” Maye said.
But you also want to make sure you don’t have a large refund next year, either, Maye said, because that’s essentially lending the government interest-free.
Consider working with a tax preparer to make sure your situation holds no surprises.
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This story was first posted in May 2015.NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.