There are a number of events in life that can have a significant impact on your income taxes. When these events happen, one thing that is often overlooked is how it will impact your bottom line on your income taxes. If you have a major life event, such as the birth of a child, get married, buy a home, or get divorced, you should look at your situation from an income tax standpoint to assess if you need to file a new W-4 with your employer to have more, or less, money withheld from your paycheck. You definitely do not want to find Uncle Sam standing there with his hand out when tax time rolls around.
Getting Married? Check Your W-4:
If you get married, you will file either a joint return or a married filing separate return. The tax impact is your income will increase and you may be subject to more taxes. The good news is, if your new spouse is not working, you may be able to increase your paycheck by claiming an extra deduction on your W-4. Take a close look at your finance from a tax stand point to see if you need to make any adjustments during the year on how much income tax is withheld from you paycheck.
Getting Divorced? Check Your W-4:
When you separate or divorce from your spouse, the income tax implications are multiplied. You need to consult with an accountant to see where you stand. One thing to be clear on is who will get to claim any children as dependents as this will directly affect how much income tax you may have to pay.
Having a Baby? Check Your W-4
Having a child enter into your world is a true blessing, even when it comes to income taxes. Otherwise known as little tax deductions, your child will entitle you to keep more of your hard earned money. You may also qualify for the Earned Income Tax Credit or Child Credit. As all these things affect how much you pay in income taxes, you may want to consult with a tax specialist to see if filing a new W-4 can help you increase your paycheck.
Moving? Check Your W-4
One thing that is often overlooked is when you move, you need to submit an updated W-4 to any employer you had during the tax year. This will provide the payroll department with your correct mailing address so that you can receive your W-2 in a timely manner. You may also want to file IRS Form 8822 to inform the IRS if you change your address after you file your income taxes.
Retiring? Check Your W-4
If you are planning on retiring some time during the tax year, check your W-4 to see if you should increase or decrease how much income tax is being withheld. When someone retires, there is often a drop in income and therefore, fewer taxes to be paid. By adjusting your W-4, you can regain some of those tax deposits instead of having to wait to file your income taxes.
These are just some areas where you should check your withholding amounts throughout the income tax year. Everyone can use more money and a bigger paycheck. Instead of letting Uncle Sam and the Internal Revenue Service give you a refund, check your W-4 to keep your money yourself.
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