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Author Topic: Tax withholdings continued  (Read 1695 times)

Ref

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Tax withholdings continued
« on: Jan 30, 2007, 05:12:08 PM »
Although you may be penalized for underpayment of taxes withheld, it is very easy to avoid if you are the average individual.

Assuming that nothing has changed from year to year (marriages, births etc) and you are making the same or more than last year, you can avoid penalties by taking your old tax return from the year before and finding the line that says "taxes owed" (line 63 on the 2006 1040).

If you pay 100% of the amount you paid in 2006, in 2007 you will be fine and, like I said, if nothing changes in your life and you make a little more than you did in last year you will probably end up paying a little at the end of the year with no penalty.

If you will make less this year or have life changes that will decrease your liability (another kid or other new tax breaks in your life), you will want to lower you taxes to no more than 90% of what you guess you will have to pay.

Adjusting your W-4 is easy and your payroll person can probably give you an idea of how much will be taken out of your check if you get the same amount of pay each period. Just ask your payroll or HR person for a new W-4 form or print it from irs.gov. Follow the directions and you should be golden.

If you have any questions, don't hesitate to ask.

Ref

This is general information and as with any tax questions the answers will vary from individual to individual. See a tax advisor for specific advice about your situation.


mistoffolees

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RE: Tax withholdings continued
« Reply #1 on: Jan 31, 2007, 08:11:50 AM »
I would definitely consult with a tax advisor. What you've said is correct, but IIRC, it's incomplete. I believe the IRS added rules a few years ago requiring that you are up to date (100% of last year or 90% of expected taxes) EACH QUARTER rather than just at year end.

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RE: Tax withholdings continued
« Reply #2 on: Feb 01, 2007, 07:46:00 AM »
This is why I was specifically referring to the average person whose income stayed the same or increased and had no life changes. You will have your taxes taken out of your checks automatically from your employer, so on a quarterly basis you should be fine. If a life event occurs OR your income changes then all bets are off. You may need to consult an advisor, or atleast do a little research on your own.(TurboTax is a good tool to use to estimate taxes).

While it is true that the tax law does read that you have to pay up on a quarterly basis, over my years of tax work, I have seen many cases where they missed a quarterly payment and made it up later with very  little penalty. As long as you are not way off base, you should be fine to do an adjustment at year end. They give you a grace amount without penalty of being $1,000 under.

And again, if you are making the similar money to what you made last year with no life changes, you should be perfectly fine using the amount that you actually paid last year.

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mistoffolees

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RE: Tax withholdings continued
« Reply #3 on: Feb 01, 2007, 08:17:05 AM »
Absolutely.

I was only clarifying because when this thread started on the Socrateaser board, it was suggested that a person only pay a very small amount of taxes at the beginning of the year and make it up later. This could get you into trouble.

Consistently paying what you paid last year (if you have fairly stead income), as you've suggested is a safe approach.

 

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