w4-adjust-withholdingsThe more you make, the more you pay. Depending on how big your raise is, you may be in a different tax bracket. The fact is that higher taxes are a cost of being successful, so don’t be totally discouraged that you may be paying more tax money if you are making more throughout your life. Also, there are many situations that may affect your taxes in the coming year such as a new baby, your kid turning age 17 this year (lose a $1,000 child credit), kids going to college, or retirement that can drastically change the outcome of your return. As a result, you need to be aware of your tax withholdings on your pay stubs now to make sure you are paying enough throughout the year. “Withholding” means the amount of taxes taken out of your pay check for federal and state taxes. Not having enough taxes withheld from your paychecks could result in a high tax bill and potential penalties when you file your tax return. You can use tax refund calculator and W-4 calculator, such as the ones on Taxbrain.com, to estimate your withholdings. Once you find what your withholding allowances should be, you will need to get with your employer and complete a new Form W-4 (Employee’s Withholding Allowance Certificate) if there are any needed changes. The information you report on a Form W-4 is used to calculate how much of your tax will be paid from your paycheck every period. Keep in mind you can always complete a new Form W-4 with your employer at any time and adjust your withholding. In general, the best tax return is a return where you owe a little money. Yes, we all love to see refunds, but in reality a refund generally means you loaned some money to Uncle Sam during the year, and you’re just getting your money returned to you without interest. Your goal is to owe a little tax, but not too large to trigger a penalty (usually $1,000 or more of tax on a Federal return may trigger penalties). However, some people like the idea of getting a refund because they don’t want to think about saving money during the year to pay a tax bill during tax time. Getting a refund does provide peace of mind not worrying about future tax obligations to pay. When making your tax plan, you should make your decision on whether to owe or get a refund based on what you will be comfortable with. When looking at tax planning, look at both the long term (future tax years) and short term (next tax year). Certain tax deductions can benefit you this year, but they could hurt you with higher taxes in later tax years. Estimate what will give you the best outcome with the least amount of risk. There are many situations that may affect your taxes in the coming year such as a new baby, your kid turning age 17 this year (lose a $1,000 child credit), kids going to college, or retirement. Making some time now to plan for the next filing season and making any adjustments to your tax withholdings to your pay is now the ideal time. You can avoid any surprises for the next filing season and check your tax withholding using Taxbrain’s free W-4 calculator. Not using Taxbrain yet? Visit Taxbrain.com today and sign up for a free account. Vincent Mangiapane, EA Federal Analyst, Taxbrain