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Tax Reality Check with Bev

Once your 2022 taxes have been filed, it is a good time to re-evaluate your tax situation for the 2023 tax year. 

Perhaps when you filed your taxes this year, so much has changed that your tax refund was not what you expected.  Or perhaps what you owed was greater than you expected.  That’s why now is the perfect time for a tax reality check.  If you are one of the lucky ones, perhaps you prepared adequately and you landed right where you wanted to be with your tax return.

No matter what your situation, the tax rules have been changing significantly over the past few years.  Whether it was from a change in presidents or from the impact of COVID, the tax rules have changed, and these changes have impacted families nationwide.  That’s why it’s essential to run a reality check now (and periodically throughout the year) to ensure you don’t face a tax surprise in 2023.  Because there is no such thing as a good tax surprise.

One of the easiest things to check on is your payroll withholding

Employers are legally required by the federal government to withhold part of their employees’ income for taxes by deducting a portion of their regular salary from their paychecks.  That’s because the U.S. tax system is a “pay as you go” method.  To calculate the precise amount to withhold, employers rely on the information all new employees provide on Form W-4. If too much tax is withheld, employees receive tax refunds.

However, a lot can change over the course of a year and from the time when you initially were hired and completed your W-4 form. In certain circumstances, it makes sense to revise the amount of income that gets withheld.  The amount of income withheld for taxes is governed by the following considerations:

  • Whether you select a “married” or “single” rate on your W-4
  • The amount of income you earn (from a single or multiple jobs)
  • Whether you wish to withhold extra funds

These considerations are affected by major life events which can impact the amount of tax withheld from your paycheck.  If any of these following life events happen to you, you should re-evaluate and potentially modify your W-4 form:

  • Marriage – Impacted by whether both spouses earn income.
  • Divorce – Impacted by not only losing one spouse’s income but also by alimony.
  • Birth or Adoption – Adds a dependent and lessens your tax burden.
  • Purchase of a Home – Can reduce your tax burden due to tax benefits.
  • Non-Wage Income – Side hustle, stock dividends and interest income add to your income.
  • Second Job – Depending if W-4s completed with each employer.

If any of these changes have occurred to you, it is a good time to check your withholdings.  IRS has a useful Tax Withholding Estimator to help you calculate correctly.  Upon completion, it may be advantageous to change your W-4 with your employer.

Of course, changing your withholding will affect your take home pay.  Increasing your tax withholding reduces your net paycheck amount, while decreasing your withholding increases it.

Perhaps you have already experienced one of these life events but did not adjust for it.  For example, if the amount of income tax withheld from your salary or pension is not enough, or if you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards, then you can make estimated tax payments to account for the difference in tax not being withheld.  This is important so that you do not get fined with an underpayment of tax penalty.

As mentioned previously, taxes are to be paid as you go or as you earn income.  Therefore, the following chart indicates when your money is earned and when the estimated tax payment should be made:

Due Dates for 2023 Estimated Tax Payments
PaymentWhen Income Earned in 2023Due Date
1st PaymentJanuary 1 to March 31April 18, 2023
2nd PaymentApril 1 to May 31June 15, 2023
3rd PaymentJune 1 to August 31September 15, 2023
4th PaymentSeptember 1 to December 31January 16, 2024

If you want to avoid paying taxes when you file your tax return, it is better to withhold more income throughout the year. However, there is a lost opportunity when withholding more than necessary. By overpaying taxes in advance of when they are due, you lose the chance to invest those funds and potentially grow your capital.  But paying estimated taxes quarterly requires you to be disciplined to set aside the funds for payment.  Whereas with a payroll withholding, your employer deducts those funds from your paycheck and submits them on your behalf.

If you need help determining your withholding or any other taxing situation, we can help you with your reality check.  Contact our office at 301-714-2071 or visit www.SaundersTax.com.  We have been helping clients experience a Less Taxing Life and More Prosperous Solutions since 1984!

Comments

Tammy Annette Robinson 1964-2024

For the past years, Tammy helped take care of her mother. She enjoyed watching game shows and listening to contemporary Christian music.

Robert William Gordon 1947-2024

Born August 18, 1947, a son of the late Merrill R. and Goldie E. Kotzmoyer Gordon, Bob liked to hunt and fish, and loved spending time with his family.

Janice Mae Keller 1938-2024

Janice always enjoyed shopping trips with her children and always used that opportunity to stop at her favorite restaurant, Olive Garden.

Ethel R. Smith 1935-2024

Ethel was a very loving and caring woman. She will always be remembered and cherished as a loving wife, mother, grandmother, and friend.

Sharon M. Matthews 1951-2024

Sharon enjoyed game shows on TV, mostly Wheel of Fortune. She also liked watching the Food Network and talk about what they made.

Ralph V. Foltz 1928-2024

Ralph enjoyed hunting, telling stories, and traveling around the United States on bus trips, alongside his wife Lois.

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