Tuesday, May 17, 2011

MiTaxes: Time to Adjust the Withholdings

So unless you extended, your taxes are done and filed and if you are like most people, any refund you got has long been spent. If you owed money, you probably still feel the sting of having to send more money to the government. If you got a large refund or owed a lot, now is the time to make changes. We are already 5 months into the year, so there are only 7 more months to get this years taxes adjusted. If you work with a CPA, they should have already given you some suggestions (if not, rethink your choice in CPAs). If you do your own taxes, you'll need to recalculate your Federal W-4 and equivalent state forms to dial in your withholdings.
I was recently talking to a payroll company for a guy (I'll call him Fred) who did not have enough withholding and owed taxes in 2010. Instead of changing exemptions, the payroll rep suggested Fred claim exempt on the number of exemptions, figure out how much he needs to pay in taxes by the end of the year, divide it by the remaining pay periods, then use that amount as the “additional tax to be taken out” on the W-4. Now Fred expects 2011 to be exactly like 2010 and his situation may be unique, but I thought the suggestion was interesting and worth passing along.
Now for the disclaimer, nothing in this article or blog should be construed as tax or financial advice. Your situation is most likely different and you should consult a tax professional regarding your situation.