Many taxpayers wait until the height of tax season to know if they are to get a tax refund or if they will owe Uncle Sam some cash. This can be an anxious time as one calculates or awaits to find out their position from the preparer. However, any taxpayer can have full control of their taxes and know their liability, even as taxes accrue. This way, you can manage your taxes and even determine what amount of refund or what fees to pa. Here are some tips on how to determine your tax liabilities way before due time and how to manage them better:
The IRS Calculator
The IRS Tax Withholding Calculator is a service available on the IRS website. This calculator enables you to calculate the taxes that you will be due at year’s end. It is a very detailed calculator and will require you to input many fine points such as your eligibility for Child-Care credits, your contributions to retirement accounts with tax savings, contributions to Health Savings Accounts (HSA), withheld taxes as indicated in your paycheck, among other tax figures.
Use an Online Paycheck Calculator
The online payment calculators are provided by a third-party website and not the IRS. They are much easier to use as compared to the IRS calculator and are ideal for a quick tax checks. To use the calculator, you will input your annual income, your state, the allowances included in your W-4, and other few tax details. Once you have inputted these details, the calculator computes your State and Federal taxes that will be due at the end of the year. This is one of the easiest ways of knowing how much taxes you will owe at tax time. However, the calculator does not give a very accurate result, as other factors not included in the calculations affect your taxes. All in all, the results you get are generally accurate and indicative and will only be off by a few dollars. You can easily get an online paycheck calculator by conducting a search.
Preparing Dummy Return
Another way of knowing the taxes that you will owe at year’s end is by filling out a dummy tax return. You can do this manually or use tax software. Fill out all the fields with your actual numbers as if you are filing a return. This way, you can calculate the taxes that will be due at year’s end.
Once you have prepared your taxes using whichever method you decide, you can then review the numbers so as to manage your taxes. If results show that you will owe significant taxes or you will be owed a refund, you can make withholding tax adjustments in good time to ensure that your taxes are withheld correctly as the year goes by. You can make the adjustments by providing your HR department with a new W-4 form with the corrected adjustments. However, when making W-4 form adjustments to reduce your taxes, ensure that you will end up paying off over 90% of your due taxes by year’s end. If you will have paid less than 90% by year end, you may be charged penalties and interest on the difference.