MAKING WORK PAY - WILL IT COST YOU ON APRIL 15TH
In February, the Obama Administration signed into law an economic stimulus package that could end up costing taxpayers in the long run. Simply put, The IRS created new tax tables that reduced the amount of holding from employees paychecks and retirees pensions. However, the changes to the withholding tables did not take into consideration the dependents who receive wages; single taxpayers with more than one job; and joint filers where one or both spouses have more than one job or both spouses work. This could also include those taxpayers who receive pensions and social security.
Because the number of exemptions needed are not created equal, taxpayers should use care when updating their W-4 forms at year end. Certain taxpayers whose income is not subject to withholding (i.e. self-employed, those with dividends and interest, and owners of rental property) are required to make estimated tax payments. Considering the fact that business owners have many sources of income and other family members with W-2 income, incorrectly claiming the number of exemptions could result in a substantial tax liability come April 15th.
Here is what I would suggest:
- Contact your tax preparer and ask him/her to estimate your tax liability at April 15th. Most professional preparers use highly sophisticated software that helps reduce the time needed to provide this service.
- Consider other life changes that have happened during the year or may occur prior to the end of the year. Such things as tapping into your retirement account, college tuition for children, or caring for an elderly parent all affect your tax liability.
- Determine what strategy you should take now that will save you money today or in the future. For example; Would you be better off to convert your regular IRA to a Roth IRA in anticipation of more income being reported in future years?
Remember; The Making Work Pay Credit could lead to more than 15.4 million people owing additional taxes so take action now to prevent surprises this spring. Should you have any questions or be interested in knowing more, call me at 952-746-3470. Ask us about our Making Planning Pay Credit. And yes, it does pay to plan.
