Welcome to Extreme Investor Network, where we provide you with expert advice on personal finance to help you make informed decisions about your money. Today, we are discussing how to estimate tax withholding and ensure you are on track for the upcoming year.
One way to estimate your tax withholding is by looking at your total federal taxes paid for the previous year, which can be found on line 24 of your tax return. If your income and tax situation have not changed significantly, you can use this amount as a starting point for estimating your taxes for the next year.
However, it’s essential to review your pay stubs throughout the year to ensure you are on track. By paying approximately 75% of last year’s total taxes by the end of September, you can get a good idea of where you stand. But keep in mind that major life changes, such as getting a second job, getting married, having a child, or experiencing a significant increase in income, can impact your tax situation and require a more detailed analysis.
To accurately estimate your tax withholding, consider using the IRS tax withholding estimator, a free tool that takes into account various factors like marital status, dependents, income sources, and taxes withheld. The tool provides you with a prefilled Form W-4, which you can give to your employer to adjust your withholding accordingly.
If your tax situation changes during the year, it’s crucial to keep an eye on your withholding and make necessary adjustments. Failure to do so could result in unexpected tax bills, penalties, and interest. By staying proactive and using tools like the IRS estimator, you can ensure you are on track with your tax withholding and avoid any surprises come tax time.