As the 2024 tax season approaches, individuals often find themselves grappling with the worry of unexpected tax liabilities. The good news is that proactive measures can be taken now to minimize the chance of a surprise tax bill later. Experts emphasize the importance of evaluating your tax responsibilities—particularly if there have been changes in your financial situation or employment status over the past year.
Most employees have their taxes withheld directly from their paychecks. This system allows for a gradual and manageable way to meet tax obligations without the financial strain that can come from a lump-sum payment at the end of the year. However, individuals with diverse income sources, such as freelancers or those with secondary employment, are often required to make estimated quarterly tax payments. This lack of consistency can lead to significant discrepancies between what has been paid and what is actually owed.
For individuals who have consistently overpaid their taxes, a refund may come as a small consolation; conversely, facing the prospect of underpayment could lead to a financial shock when tax season rolls around. Therefore, understanding your current tax situation is paramount.
In evaluating your potential tax bill for 2024, a basic overview can provide clarity. Tommy Lucas, a certified financial planner, suggests using straightforward math to assess your withholdings based on your previous tax return. To begin, locate the total federal taxes you paid for 2023, often accessible on line 24 of your tax return. If your income and circumstance remain largely unchanged, there’s a fair chance your tax payments in 2024 will align closely with what you owed last year.
A practical check involves examining your pay stubs. Lucas notes that if, by the end of September, you’ve already paid about 75% of your 2023 taxes, you are likely on track for a similar outcome in 2024. However, it’s essential to remain mindful of life events that could impact your tax standing, such as job changes, marital status adjustments, or any new family additions. In these cases, relying solely on previous figures may not suffice.
When your tax situation shifts, it is advisable to utilize the resources available, such as the IRS tax withholding estimator. This free, user-friendly tool can help you accurately assess your tax obligations by incorporating various personal factors, including marital status, dependents, and other income sources. After inputting your information, the estimator generates a pre-filled Form W-4, which can be submitted to your employer for adjustments in withholding.
As Mark Steber from Jackson Hewitt warns, neglecting to monitor your withholding can lead to unwanted tax bills, including potential penalties for underpayment. Maintaining awareness of your tax situation is critical to avoid unexpected financial burden come next April.
If adjustments to your withholding are necessary, it is crucial to ensure those changes are reflected in your paychecks for the remainder of the year. However, simply making temporary changes will not suffice for the long term. Lucas advises individuals to resubmit their Form W-4 at the beginning of the new year. This practice ensures that any shifts in financial circumstances are taken into account and that the employee’s withholding aligns accurately with their tax obligations.
Planning ahead and making informed decisions regarding tax withholdings can significantly impact your financial health. By remaining vigilant about your tax responsibilities throughout the year, leveraging available tools, and staying educated about changes in your financial situation, you can avoid the stress and uncertainty of surprise tax bills in 2024. Grasping your tax obligations does not have to be daunting; it merely requires attention and a willingness to adapt to changing circumstances.