Paying taxes is something we all do. While it is never fun to go through an entire year of pay stubs, receipts, bills and other financial paperwork, it is even worse when you have to do it and then unexpectedly pay a lot of money. The IRS has now sent a reminder to taxpayers to plan ahead with a “paycheck checkup” to avoid having to pay unexpected amounts again next year.
New tax law goes into effect
It’s also worth noting that the new Tax Cuts and Jobs Act legislation passed last December has made many changes to tax law. These include:
- Removing personal exemptions
- Raising the standard deduction
- Raising the Child Tax Credit
- Removing or limiting some deductions
- Changing tax brackets and rates
Changes have a far ranging impact
These changes will likely have far-ranging impact on tax refunds and balances due. With this in mind, it is smart to look at your paycheck to see the proper amount of taxes are being taken out. This can ideally ensure that you owe little or no money to the IRS when you file. It is commonplace to overpay taxes, so by doing this you can potentially lower the withholdings and get a larger paycheck. They have provided a withholding calculator.
Tips for using the withholding calculator
This program will ask you to estimate your 2018 income, the number of kids claimed for Child Tax Credit and Earned Tax Credit and the usual items that affect your taxes this year. You will need to gather the following information:
- All your recent pay stubs
- Your 2017 tax return
- Your Form 1040
Once you assemble all the necessary documents, the process shouldn’t take more than a few minutes. It will also enable you to fill out a new Form W4. While this process is done mid-year in 2018, it’s advisable to do it once again in 2019 once there has been a full year with the new law.
Proactive approach can save you money
It’s a good idea for taxpayers to do this now to avoid a large tax bill later. Things can get worse if you find yourself facing potential litigation. Speaking with a tax expert or an attorney with a background in tax law can be helpful and reduce later often unnecessary expenses.