Don’t let tax time fool you. Some people are overjoyed to receive a big refund at tax time, others are disgusted to learn they owe money. There’s no such thing as luck when it comes to your taxes. Things rarely remain the same year after year so you need to review and tweak your taxes as life changes. Losing your job, moving, having a baby or anything significant in your life can have a major effect on your taxes. Here’s what you need to do to prevent surprises on your next tax return.
Review your tax withholding
Form W-4, Employee’s Withholding Allowance Certificate, tells your employer how much needs to be withheld from your paycheck. The more allowances you claim, the bigger your paycheck will be since less taxes are deducted. Before you start claiming everything under the sun, understand that if you don’t pay enough taxes during the year, you’re going to owe money when you file your tax return.
On the flip-side, having too much tax withheld means you’re giving Uncle Sam a tax free loan and will be receiving a refund – without interest – at tax time. Use the IRS Withholding Calculator to see if you’re on the right path. If you need to make any changes just complete and submit a new W-4 to your employer.
Pay your estimated taxes
Most people fulfill their tax obligations by having taxes deducted from their paycheck. If you have income that isn’t subject to withholding like self-employment, alimony or rent, you may have to pay estimated taxes. Estimated taxes ensure that Uncle Sam gets his fair share. If you expect to owe over $1,000 in taxes and meet other conditions, you may need to pay estimated taxes four times a year. They are usually due on the 15th of January, April, June and September. Failing to make the proper payments will result in penalties.
Update the Marketplace of any changes in circumstance
Since not every employer provides health coverage, many people purchase their own plan from the Health Insurance Marketplace. Individuals with low to moderate incomes can qualify to receive advanced payments of the premium tax credit. These payments are sent directly to your insurer and make monthly premiums more affordable. In order to maintain the appropriate amount of financial assistance, you need to update the Marketplace whenever life changes occur. This will ensure than you aren’t receiving too much or too little help. If you receive more assistance than needed, you may have to pay it back when you file your tax return. ezTaxReturn supports the Affordable Care Act and will calculate what you owe or what refund you’ll get when you file with us.
