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The IRS encourages “End of Summer Tax Checkup”

The IRS has recently advised taxpayers to do a tax check-up. This might help you prevent getting unanticipated tax bills in the next year. The agency underlined that many taxpayers would owe taxes if they did not change their withholding or make estimated payments. To enable citizens to match their tax payments to what they owe, the IRS advised using the Tax Withholding Estimator tool. This would prevent them from paying fines and going through needless worry during tax season.

Those engaged in the gig economy, those making income not subject to withholding taxes, and anyone with a “side hustle” should be most cautious. To make sure their tax paid matches what is due, these people should review their pay or the amount of tax they have deducted over the year. The IRS reminds consumers that starting their tax planning now will save them time and aggravation down road. Here is some critical information for your go over:

How Refunds Work

Pay-as-you-go is the federal taxing structure. Taxes must be paid by taxpayers anytime they receive wages or income throughout the year. Many people find that their company withholds taxes from their paychecks, which are subsequently sent to the IRS on their behalf. Some people, like those engaged in the gig economy, have quarterly estimated taxes due all year long. Usually, an excessive amount paid or deducted over a year results in a refund.

Steer Clear of Being Taken Off Guard by a Bill

Conversely, many taxpayers who underpay their taxes all year long risk estimated tax penalties. The fine varies based on the person, but it can be several hundred dollars for some. Reducing the tax deducted from paychecks or anticipated tax payments will help you avoid penalties.

Those who can especially benefit from this information are self-employed individuals—including those in the gig economy, those with multiple jobs, those who have experienced major life events like a recent marriage or childbirth. It’s also true of people who have gone through significant career transitions. Considering all of this, the IRS advises taxpayers to use the IRS Tax Withholding Estimator during the summer to assist them in better matching their tax withholding or payments with what they owe.

Tax Withholding Estimator

To enable consumers to make sure their tax withholding or payments match their required level, the IRS developed a Tax Withholding Estimator. This tool, available on IRS.gov, helps people find their annual required federal income tax payment amount. Taxpayers must provide a copy of their 2023 tax return together with pay stubs for all employment or other income sources, including income from side businesses, self-employment, or investment earnings, to use it.

The Tax Withholding Estimator may be of use when:

  • Estimating your federal income tax withholding
  • Determining how a refund, take-home pay, or tax due is affected by withholding amounts
  • Selecting an estimated withholding amount that is suitable for yourself and your family

Should a withholding change be needed after completion, taxpayers must make the required corrections by sending a fresh Form W-4 to their pension provider or employer. As necessary, they can also change quarterly projected tax payments. The IRS also reminds people to use the Tax Withholding Estimator should their life undergo a major change, such as:

  • Any additional paid employment or new job
  • a notable change in income
  • Getting married
  • Becoming a parent
  • purchasing a new house

Seek Help From a Qualified Tax Advisor

Visit the IRS’s official website and apply their Tax Withholding Estimator tool to learn more. Keep in mind that you should see a qualified tax adviser if you have questions regarding taxes. However, we can also help you, if you’re looking to make changes to your financial retirement strategy, including lessening the impact of taxes on your savings. There are some tax-deferred and tax-free choices available you may not have even heard of before. Would you like to know more about how these options might protect your hard-earned savings? Get in touch with us today.