Sunday, August 26, 2012

Tweak withholding to avoid big tax bill.

FROM  http://www.tulsaworld.com

The Internal Revenue Service recently reminded taxpayers it's not too late to adjust your 2012 tax withholding to avoid large refunds or big tax bills at tax time. "Taxpayers should act soon to adjust tax withholding to bring withholding closer to what they owe, putting more money in their pockets during the year," said IRS spokesman David Stell.
"Most people have taxes withheld from each paycheck (or pay taxes on a quarterly basis through 'estimated tax' payments), and each year millions of workers have far more taxes withheld from their pay than is required," said Stell. "Many people anxiously await their tax refunds to make major purchases or pay financial obligations. But we urge them not to tie major financial needs to the arrival of refunds, especially when they need this money by a certain date."
Don't let Uncle Sam be your investment fund manager OR your travel agent. You want that money in your pocket so you can invest it. In other words, "Tweak that W-4" ( tulsaworld.com/FormW4). When your refund is larger than $200, or you owe more than that, it's time to tweak your W-4. People often over-withhold as the source of a vacation fund. Uncle Sam doesn't pay you interest on it. If you want to save for a vacation, have your credit union transfer $200 per month into a savings account.
Employees: When you start a job, your employer has you fill out IRS "Form W-4, Employee's Withholding Allowance Certificate." This tells your employer how much to withhold from your wages to pay your federal income taxes monthly. Paula Ross, spokeswoman for the Oklahoma Tax Commission, said state withholding is based on the federal W-4, and if you find yourself owing more than $50 in Oklahoma income tax yearly, divide the amount by your paydays and add the additional amount to Line 6 of Form W-4.
You might want to change your W-4 when certain life events happen during the year, including changes in your marital status, birth of a child, getting or losing a job and buying a home. Update your W-4 every January by changing the number of "withholding allowances," but if you need to decrease withholding allowances for changes in your marital status (married to single), you must give your employer a new Form W-4 within 10 days of those events.
Self-employed: Form 1040-ES is for the self-employed. If you owe $1,000 or more in taxes annually, you must make "estimated tax payments" to pay your income tax, Social Security and Medicare taxes quarterly. Use the worksheet in "Form 1040-ES, Estimated Tax for Individuals" ( tulsaworld.com/Form1040ES) to see if you must pay estimated taxes quarterly. Make estimated payments to avoid owing taxes at tax time. Also see "Publication 505, Tax Withholding and Estimated Tax".