As tax season approaches, you might be asking yourself, “How much tax should I owe in April?” That’s a very good question.
Here’s a quick answer:
You should owe or get back between $500 – $800 unless there are extenuating circumstances, like opening a business, moving, etc. If you owe more, your tax deductions per paycheck may be too small. If you’re getting back more, too much is being deducted from your paycheck. Which means less monthly cash flow for you.
When was the last time you took a good look at your paycheck? That’s right. Your paycheck.
Your paycheck provides a wealth of information that can help you improve your monthly cash flow and make that April 15 tax liability a little less jolting.
Here’s what you should look for:
• Refer to last year’s tax return. What did you owe last year or what did you get back?
• At the very top of your paycheck look for the heading “Exemptions and Allowances.” This tells you what you chose for withholdings as per your W-4.
• Take a look at the actual dollar amount that is being deducted in the Taxes section of the paycheck.
Make some Adjustments:
• Try using the IRS Calculator https://www.irs.gov/Individuals/IRS-Withholding-Calculator
It’s a very handy tool and it will help you determine what you should be withholding. The instructions are very clear and helpful.
• Depending on what you discover from this exercise, you may want to head over to HR and fill out a new W-4 for the year. Remember even if your company is on a fiscal year, taxes are always calculated inside a calendar year.
In addition to your Exemptions and Allowances, you may want to look at:
• Time off used and available.
• Other deductions pre and post tax.
Like any financial document, your paycheck deserves your attention periodically, especially at the beginning of the year. So, before you deposit it or toss the stub, give it a good looking over.