The most recent changes to the tax code, the Tax Cuts and Jobs Act, caused people to see some fairly significant changes in their tax refund this year. If you saw changes that left you with a much smaller tax refund or a larger tax bill, you may want to do a “paycheck checkup,” to make sure your withholding taxes and other information are aligned to keep you from paying a large amount at the end of the year.
Working a Second Job
If you work a second job, your secondary position may not be taking out enough in taxes to keep you from paying at the end of the year, especially if you only work a few hours a week. Fortunately, you can change your Form W-4 at any time with your employer and decrease the amount of dependents claimed or you can have a set amount deducted from each check like an extra twenty dollar deduction.
Working as an Independent Contractor
The past several years has seen a rise of the “side hustle,” in which people earn extra money through self-employment methods rather than a traditional second job. Examples of this include driving for Uber, working in direct sales like Avon, or freelance writing. Working in this capacity, you’re an independent contractor, meaning there are no payroll taxes withheld, so you’re responsible for paying your Social Security, Medicare, and income taxes.
If you are an independent contractor, and you expect to owe $1,000 or more when you file your annual taxes, you should be making estimated quarterly taxes and filing Form 1040-ES. An experienced CPA in Raleigh can help you determine if you need to pay quarterly taxes and help walk you through the paperwork.
Changes to Your Family
When you think of “life-changing events,” you’re probably not thinking of your taxes, but you should be! Events like having a baby, getting married, adopting a child, going back to school, or buying a house can absolutely affect your refund or tax bill, and you may want to look at your withholding tax to ensure those changes are factored in to prevent unpleasant surprises come tax time.
Conducting a Paycheck Checkup
If you’re worried about getting hit with a large bill next April, or you would like to exchange a big refund for more money on your paycheck, you can do a “paycheck checkup.” Using the Withholding Calculator on the IRS website, you can estimate your income, credits, adjustments, and deductions easily and make sure the right amount of money is being withheld from your check. If you have them available, have your 2018 tax return and your most recent paycheck stub handy.
Once you complete the quick calculations that factor in things like child tax credits, retirement accounts, and deductible interest, you’ll get your results. These recommendations factor in your anticipated income and your anticipated withholding amount along with a calculation if you’ll get a refund or have to pay in April. This is just an estimate, but it does give you a solid direction on what changes you should make, whether that’s utilizing the IRS’s Pay As You Go option or changing your W-4 .
Contact a Raleigh CPA for Tax Planning Services
Avoid getting a shock when you do your taxes in 2020. Contact our team of experienced CPAs in Raleigh who will work with you to help you find deductions and also see what your best options are, whether you work more than one job, are an independent contractor or self-employed, or you have experienced life changes. Call us today at (919) 872-2659 or fill out our contact form to schedule a consultation.