Sometimes it's as though doing your taxes is a crap-shoot, and you never know whether you'll owe money or get a refund until you actually do the paperwork, and it doesn't have to be that way. There are a couple of ways to go about this, from changes you can make to your W-4 with your employer, to some more drastic methods that will make sure you neither owe or receive money when you file every year—or at least come as close to even as you can get.
Let's walk through them one at a time. The first place to check to make sure you're not underpaying or overpaying on your taxes is the W-4 you have filed with your employer.
The rule generally goes that the fewer allowances you claim, the more money will be withheld—or taken out of—your paycheck and sent to the IRS towards your taxes. If you find that you're paying way too much in taxes and get a huge refund every year, you may want to update your W-4 to claim an allowance or two.
If you're severely underpaying your taxes, it may be time to take fewer allowances. Keep in mind that claiming "exempt" isn't the same as taking no exemptions—"exempt" only applies to people whose taxable income is below the taxable level.
While it's true that for most people, claiming 1 or 0 allowances will result in a tax refund and claiming 2 or more will result in either breaking even or owing no taxes at all, the truth is a bit more complicated and depends on your situation.
Photo by Lane V. Erickson Shutterstock. Relax and be free from anxiety Take back good sleep and help alleviate pain. For example, if you work multiple jobs, you should make sure to claim zero allowances at your second job, or you may wind up overpaying on your taxes. However, if you work a full-time job and have cash side-income, you'll want to make sure you either withhold additional money from your primary paycheck to compensate for the added income, or you'll want to look into quarterly estimated tax payments more on this later.
There's a guide to adjusting your tax withholding at About. For most people, the first step is to take a look at the W-4 you have on file, and if you wind up getting too much back, adding an allowance or two, and if you wind up paying too much, reducing your allowances or telling your employer you'd like an extra dollar amount withheld for taxes.
If your issue is that you find yourself owing too much money when you file your taxes, make sure you're claiming all of your deductions. How you fill it out could make a big difference in your take-home pay, and how much you give or get from the IRS come next spring.
You don't want Uncle Sam to take too much off the top -- that's money you could have used over the months to cover living expenses, savings or investing. And you don't want to pay too little or you'll get stuck with a big tax bill on April It all comes down to how many "allowances" you claim. The more allowances you claim on your W-4, the less income tax will be withheld.
If you claim zero allowances, you will have the most tax taken out. Most people fill out their W-4 when they first start a job and never think about it again. However, it's never set in stone. You can adjust your withholding at any time if you think you're having too much or too little taken out. Say, for example, you buy a house and start paying a huge mortgage interest payment each month. Because you can write off that interest on your tax return and reduce your overall tax bill, you can claim more exemptions on your W-4 to reduce your withholding.
Instead of waiting for your refund at tax time, you'll get the cash in your pocket right now to help make ends meet or have a little fun. A tax refund is simply evidence of poor financial planning. To make sure you are having the right amount of money withheld from your paycheck, try our easy withholding calculator. Just answer three questions the answers are on your return , and we'll give you a solid idea of how many more withholding allowances you should be claiming. It's based on the premise that your financial life in is going to be pretty much the same as in There's no getting around it, you have to pay taxes.
But you can reduce the amount of your paycheck that is subjected to them. Taking advantage of employer-sponsored programs that allow you to contribute pre-tax money toward routine expenses -- such as health care, child care or retirement savings -- can help your paycheck go further. Take the k , for example. These retirement accounts allow you save for your future while reducing your taxable income today. Your k contributions are taken off the top before the government dips in.
Some employers may match a certain portion of your k contributions, essentially giving you free money to invest in the plan. Take a pass, and it's like passing up a raise. Some jobs allow new hires to join a k program immediately, while others may require you to wait three months to one year. See Why You'll Love Your k to learn more about making the most of your k.
Flexible-spending accounts are another great way to lower your taxable income while paying for routine expenses. Retired: What Now? Personal Finance. Credit Cards. About Us. Who Is the Motley Fool? Fool Podcasts. New Ventures. Search Search:. Jan 3, at AM. Author Bio Charlene Rhinehart is a personal finance writer and former financial analyst. Her goal is to help more individuals build a stock portfolio that's bigger than their shoe collection.
With a background in taxes and pageantry, Charlene is always ready to sprinkle a bit of glam and happiness into her work to help individuals achieve their goals.
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