It is vital for taxpayers to understand what withholding is and how it can affect the outcome when it comes to filing a tax return. Optima Tax Relief explores why taxpayers need to do a withholding checkup in order to avoid facing any possible consequences at the end of the tax year.
When should I check my tax withholding?
An income tax withholding is determined by a taxpayer’s future filing status as well as their standard deduction. Adjusting your withholdings on your paycheck can determine the outcome as to whether or not you receive a refund or owe a tax liability when filing your taxes.
It is recommended that taxpayers check their withholding annually or when any life changes occur, such as marriage, birth or adoption of a child or a change in employment. If you have changed your withholding status earlier in the year, typically before you filed your tax return, the IRS advises that you revisit your current withholding status to ensure that it’s still accurate.
What should I do if taxes aren’t withheld from my paycheck?
Those who are not subject to having their income withheld from their paycheck may need to start making quarterly estimated tax payments to the IRS. It is also advised that taxpayers who have received unemployment compensation at any time of the year double-check their tax withholding to ensure they have enough withheld from their pay.
Even financial transactions that are made throughout the year could have a negative impact when filing your taxes. Taxpayers need to be aware that receiving year-end bonuses, holiday bonuses, stock dividends, capital gain distributions from mutual funds and stocks, bonds, virtual currency, real estate or other property sold at a profit, can cause a taxpayer to owe a tax balance instead of receiving a tax refund.