Although it seems like we just wrapped up 2018 returns, it is already time to start thinking about the next tax season! Be sure you’re ready for the upcoming filing season by ensuring your withholdings or estimated tax payments are up to date.
If you’re a W-2 employee or take money out of a pension or annuity, the IRS website has a handy tool to help you ensure you’re withholding the proper amount. The tax withholding estimator allows you to check up on your withholdings and will estimate whether or not you will get a refund or have an amount due. This allows you to then fill out an updated form W-4 to adjust your withholdings on your wages if need be. The W-4 form gets filed with your employer, not the IRS. If you are the recipient of a pension or annuity amount, you can update your withholdings with a form W-4P that gets filed with your payer.
Checking up on your withholdings can especially be useful if you had a major life event happen in the current year. Events such as getting married, getting divorced, having a child, buying a home, or retiring can have a significant impact on the amount of taxes you may owe.
If you are a taxpayer that has mainly non-wage income, such as self-employment or investment income, it is important to ensure you are making the proper estimated tax payments, since you don’t have withholdings being taken out of your income. Estimated tax payments are due quarterly and the last payment for the tax year 2019 is due on January 15, 2020, so there is still time to plan! You can use the Form 1040-ES that has a worksheet to help calculate what your estimates should be. If you don’t feel comfortable calculating this on your own or have substantial changes in income from the previous year, finding a tax professional to help calculate this can be an option as well.
Also, be aware, if you receive income in the form of virtual currency, such as Bitcoin, be sure to include this income for any withholding estimates or estimated payment calculations. As always, if you have any questions, contact your Henry+Horne tax advisor!
Christine Sanchez, MSA