A lot of people like to receive a refund from the IRS, thinking of it as a form of forced saving. On the other hand, if you underpay your taxes by more than $1,000 and don’t meet certain exceptions, you could be hit with a penalty.
Too big a refund or too large a tax bill is often a sign that you need to review your withholding. This is especially important in 2018 as it’s likely that the Tax Cuts and Jobs Act has affected your tax rate.
How to adjust your withholding
Adjusting your withholding is as simple as filing a new Form W-4 with your employer. The form comes with a worksheet to figure out how many allowances you should claim. Or you can increase withholding by specifying an extra dollar amount to be withheld from every paycheck. Check the IRS withholding calculator to help you get a better idea of how much to withhold.
When reviewing your 2018 tax payments, keep a couple of rules in mind. Generally, you must pay at least 100 percent of last year’s tax liability, or 110 percent if your adjusted gross income is over $150,000. Or at least 90 percent of what you’ll owe for this year.
However you do it, you should adjust your withholding to match the taxes you expect to owe. If you need help figuring out your 2018 tax payments, give us a call.