Avoid Owing Anything on Your Federal Tax Return
Your way of filling the W-4 form determines the amount of income tax withheld from each paycheck, which affects the amount you will finally owe or receive refund. Every time you join a new job, you have to submit the W-4 form. However, you can submit a new W-4 form to your employer anytime. So, there’s no constraint regarding the W-4 form.
If you want to avoid overpaying or owing a sum, keep reading to know how to get your refund or tax bill to an almost zero figure.
Beginning from the tax year 2018, all kinds of personal exemptions are about to disappear, as dictated by the newly provisioned GOP tax bill.
Determine Your Total Tax Liability
Your total tax liability depends on your overall personal situation. For a salaried employee who enjoys a steady income flow, the process is quite easy, since you can determine the would-be total income for the financial year. However, if you are a self-employed or a seasonal entry in the job market, you have to make a wise guess on the basis of your income history and trend.
There are mainly 3 options for calculating your tax liability:
Online Paycheck Calculator
You can simply Google for an online paycheck calculator. The calculator can determine your federal tax liability per paycheck, on the basis of the state where you work, your gross annual pay, federal filing status, and pay frequency. By multiplying the liability with pay periods, you will get the total tax liability in a given year. This is an easier and most accurate approach. But by only depending on which tax credits you claim and the possibility of itemizing your deduction, you can find out actual tax liability.
IRS Tax Withholding Calculator
If you are facing a more complex tax situation, than the Internal Revenue Service tax withholding calculator is the right choice. It takes in consideration data like how much federal tax you had withheld from your last paycheck, your eligibility for child and dependent care tax credits, and, finally, how much you have contributed to a tax-deferred retirement plan or health savings account (HSA). You can know how much federal tax would be expected from you by the end of the year, along with the amount you paid so far. It will also show the amount you will owe or receive a refund.
Sample Tax Return
You can complete a tax return on your own if you either have tax software or know about the procedures for filling out a 1040 form. In this way, you get an appropriate image of the end-of-year tax liability. The only lacking is this year’s software is yet to be released; so you have to rely on the old one.
Determine Your Tax Withholding
As you find out the total amount you will have to pay in federal taxes, the next thing to do is calculating the figure you need to withhold per paycheck to get to the total without creating a surplus, by December 31.
If it is not possible for you to withhold enough tax, you can simply solve the problem by filling out a new W-4 form. You can directly print the W-4 form from the IRS website.
If you are paying more than what you expected, then try to increase the number of withholding allowances you claim. Although the W-4 worksheet suggests you can claim only two allowances, you can actually claim seven allowances.
The key to avoiding all these hassles is paying enough tax throughout the year to avoid interest and penalties. You don’t have to feel anxious when you owe less than $1,000 on your annual tax return. This is enough to avoid penalties. You can choose between 100% of your previous year’s tax liability or 90% from the current year. Just pick the one that is smaller.
If you are yet to receive pay stubs or paychecks, as it is the beginning of the year, simply divide the total tax liability by the number of paychecks you are to get. Now compare the amount to the one that was withheld from the first paycheck you received and make fitting adjustments.