This question often goes ignored when it comes to filing your yearly tax return. Our tax professionals outline your steps here.
Choosing how much to withhold from your wages is a key decision all taxpayers face. Often, we find people ignore this choice and set themselves up for headaches in the future. Market Tax Services wants you to feel prepared for your yearly return. There are multiple options and directions you can take when it comes to choosing how much to withhold from your wages.
This article won’t be able to tell you a precise dollar amount (only a trusted tax professional should do that!), but we can outline some of the questions you need to ask yourself and things that go into this decision.
3 Questions To Consider
There are three primary questions people tend to ask themselves before making deciding how much to withhold. The good news (before we get to all the details and paperwork) all come with a straightforward path regarding what to do next.
- Do you want a large refund on your yearly tax return?
- If you answered yes, you will need to have higher withholdings to get there.
- Do you want to owe more on your yearly tax return, so that you have more cash flow during the rest of the year?
- If you answered yes, you will want lower withholdings to leave a balance due on your return.
- Do you want to break even, either receiving or paying a small amount on your tax return?
- If you answered yes, you’ll have to make sure your withholdings are balanced against your tax obligations.
Makes sense, right?
If your taxes and income for the year won't change much...
If this year should be similar in terms of income and taxes to last year, you can refer to your prior year return to adjust this year’s withholdings. This can be done in one of two ways. Most sources of income that allow withholdings will need you to complete a new withholdings certificate (usually called a W-4, W-4P or W-4V depending on what the income source is). You can either work through the instructions, picking up other sources of income and estimating deductions to cause the right answer to be calculated.
Or, if you need additional withholdings, you can take the balance due from last year, divided by the number of payments you receive in a year from your income sources and enter a flat amount of additional withholdings. This method is often easier but may need to be adjusted from year to year.
I'm still lost, what do I do?
As our motto at Market Tax Services often goes: taxes can be complicated. It’s natural to feel overwhelmed or confused, that’s why we have a dedicated team of professionals that work hard to help you understand these things. We’d love to assist you figure out your next best steps.
To meet with a member of our team, call one of our offices or visit the Contact page.
Other Options
If you are on Social Security and would like to withhold/ adjust your Federal tax, see our article named “How do I Setup Withholdings from SS Benefits?” for more information. Another option is to pay estimated tax, which is sometimes required. See our “What Are Estimated Taxes? Why Do I Need to Pay Them” article for more information).