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Paycheck Checkup: One Simple Task That Will Make Next Year’s Tax Season Much Easier
Whether the 2017 tax season left you reeling or rejoicing, you’re probably happy it’s all over. But don’t file away your tax paperwork just yet. Believe it or not, now is the perfect time to get ready for next year’s tax season, and it only takes a couple simple steps. If you take five minutes for a paycheck checkup now, you can avoid hiccups when April 2019 rolls around.
The IRS recommends reviewing your tax withholdings every year. Last year’s Tax Cuts and Jobs Act included some important tax reforms, so it’s more important than ever to review your W-4, to prevent any unpleasant surprises when the next tax season comes.
Luckily, it’s quick and easy to set your 2018 taxes up for success. Here’s our step-by-step guide.
Do a Paycheck Checkup
Check your recent paystubs to see how much you’re withholding for taxes and how many allowances you’ve claimed on your W-4. For example, you might claim 0, 1, 2, or more allowances. This single number determines how much of your paycheck is being withheld for taxes, and could mean you’re budgeting too much or too little.
Use the IRS Withholding Calculator
The more allowances you claim on your W-4, the less is withheld from your paycheck towards your taxes. Claiming too many allowances from your withholding could mean an unexpected tax bill in 2019. The IRS has a thorough calculator to estimate your 2018 income tax, and compare it to your current withholding rate. You’ll need your latest paystub and 2017 federal tax return to fill in required fields. After answering a series of financial questions, you’ll see your estimated 2018 income tax and an estimate of how much you might pay.
Adjust Your W-4
Now that you have a better idea of what your 2018 income tax might look like, check your W-4 to make sure you’re using the correct withholding allowance number (that 0,1 or 2 we mentioned before!). If you want more money on your paycheck, go higher with your number (but be careful, this could mean you’ll owe money to the IRS next year), and lower if you’d like to see a bigger return in 2019.
Reach Out to Your Tax Advisor
If you work directly with a tax advisor or company, this is a good time to get in touch and keep them in the loop on any changes you’d like to make. It’s also a good idea to get their two cents on your 2018 income taxes and request a 2018 projection (if you foresee things staying the same).
Still have tax questions? Check out our post on the tax filing facts everyone should keep in mind. If you’re looking for more useful tips to manage your money in 2018, take a look at our financial spring refresh.