If you received an unexpected Tax bill or a smaller refund than expected this year, it may be time to review your paycheck withholdings.
Throughout the year, the IRS collects taxes, typically through paycheck withholdings for W-2 employees and quarterly estimated tax payments for self-employed individuals. You will get your money back if you overcharged. If you have underpaid, you can expect a tax bill.
CPA Offers Tax Bill Avoidance Advice for 2023
According to Sheneya Wilson, a certified public accountant and founder of Fola Financial in New York, one way to avoid a tax bill in 2023 is to use the IRS’s paycheck withholding estimator. This free tool will show you how your current withholding amounts will affect your take-home pay, tax payment, and refund in the coming year.
Wilson advises her clients to review their withholdings at least at the halfway point of the year or more frequently if they are anticipating larger payments throughout the year. “Taxpayers can use the calculator to figure out if they’re on track,” she said.
To ensure accuracy, you will need your most recent payout, preferably within a few days of the date of your most recent payment. As Wilson put it, “Incorrect knowledge might be more damaging than beneficial.”
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Major Life Events Can Affect Taxes
The IRS advises against using a tax calculator if your tax situation is complex, such as for taxpayers who must submit an alternative minimum tax return for higher-earning individuals and certain investment income.
What Wilson said was much more crucial: “The most essential thing is assessing the events of the preceding year and making the necessary modifications.”
When starting a new job, you typically complete Form W-4, which informs your employer of the amount of federal taxes to withhold from each paycheck. For a variety of reasons, the form may need to be updated and resent to the employer.
Wilson stated that there could be family changes such as marriage, divorce, or the birth of a child.
The purchase of a property or significant changes in income, among other changes in lifestyle, may also have an effect on taxes for the next year, according to the IRS.
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