Do you often find yourself owing more than expected on your yearly tax returns? While there’s a multitude of ways you can try to save on your taxes, one way to reduce your yearly tax bill is to adopt a better “pay as you go” method – helping to ease the weight of paying all that is due come tax time.
For employees of any kind, the first thing you can do is check how much your employer should be withholding from your paycheck by using the Withholding Calculator. Often if you have a large amount of tax due, that’s a sign that you’re not withholding enough throughout the year. If you find that your withholding is low, now’s the time to adjust it using one of these three methods.
Form W-4 Withholding Allowance
As an employee, whenever you reduce the amount of allowances on your Form W-4, you raise your income tax and the withholding your employer takes out from your paycheck. While this does mean a smaller paycheck for you after the withholding has been taken out, it can go to pay off your liability in advance, leading to less of a bill or better tax return at the year’s end.
Withholding an Extra Amount
If you find the amount withheld from your check still results in tax due when filing your return, simply ask for an additional dollar amount to be taken from each paycheck to make your yearly tax bill a bit more manageable. To do this, simply fill out a new Form W-4 with the extra amount added in, and send it to your employer or their payroll department.
Make Estimated Payments
Last but not least, even if you’re already getting income tax withholding taken from your paychecks, you can still pay off even more of your taxes as you go, by making estimated payments throughout the year.
By far the easiest way to do this is through Direct Pay or Electronic Federal Tax Payment System on IRS.gov, but there are also a multitude of other payment options available to you. As of 2019, there are two more quarters left for estimated payments, due on both September 16, 2019, and January 15, 2020.
If you are unsure if the amount you are withholding is correct and you want to avoid a large tax bill, be sure to talk with your CPA to have them help you determine what you should claim for withholding allowances.