If you are an eligible taxpayer, then this is the perfect time for you to start preparing for your 2019 tax returns. You might think this is too early to be thinking about your taxes. Well, we say, this could be a timely decision to avoid any end moment tax-time surprises.
There are so many little, but important things that you might not think about and only realize around the tax deadline. To avoid any such last moment tax filing jitters, you can prepare yourself with the basics and be ever-ready to file your 2019 returns.
Adjust your tax withholdings
Tax withholding is the amount of tax deducted by your employer from your paycheck every month. An equal contribution by your employer accompanies the deducted amount. The total amount then forms your tax withholding.
Many a time, taxpayers receive a shorter refund on their taxes or have to pay extra on their tax bill. The reason, primarily, are the tax withholdings that are not correctly apportioned from your paycheck.
To avoid any such last-minute shock, you shall ensure to check your tax withholding using the Tax Withholding Estimator on the IRS website. Doing so becomes more critical for those who received a shorter refund or had to pay an unexpected tax bill last year.
What if the Tax Withholding Estimator suggests a change?
The amount of tax withholding deducted from your paycheck might be different from what the Withholding Estimator might suggest. In this case, you should bring this discrepancy to your employer’s notice and request the correct amount of deductible withholding.
You can do so by submitting the Form W-4 (Employee’s Withholding Allowance Certificate) to your employer and get the same updated. Please note that the same notification is not required to be mailed to the IRS. The form shall only be submitted to your employer.
What happens in the case of Withholding for pension or annuity payments?
If you receive your pension or annuity payments and your Withholding Estimator suggests a change in the deductible pension amount, then you shall fill the Form W-4P (Withholding Certificate for Pension or Annuity Payments) to your employer and update them about the actual deduction.
Withholdings in case of owned business
If you earn a substantial amount of non-wage income like business income, interest, dividends, gains, social security benefits etc, then you would be required to make quarterly estimated tax payments. Such payments would be required in case you earn self-employment income, investment income from the sale, exchange or disposal of virtual currency, taxable social security benefits, or in some cases, pension or annuity income. Making regular payments can help you avoid a tax withholding shortfall and not load you with a hefty tax bill.
Last date for making estimated payments
The last date for making estimated tax withholding payments is 15 January 2020. You can use the Form 1040-ES to figure out the exact amount of payable estimated withholding and clear the payment before the last date.
What to do in case of a complicated tax situation?
If your tax situation is a bit complicated and making you feel jittery about filing your returns, then we have just the right thing for you. You can go through the Publication 505 (Tax Withholding and Estimated Tax) on the IRS website. The Publication is comprehensive and can guide you with your tax withholding and estimated payments.
To avoid tax liability when filing return, check your withholding on pay-check, or make estimated tax payments. MyTaxFiler can assist you in the paycheck check-up and also run estimates to advise your potential liability for 2019. Thereby helping you with making payments in advance to avoid tax liability and penalties at the time of filing. Read second part of this blog for more.