Renner Individual News; November 21, 2022
It’s never too early to start planning and preparing for the next tax season. The deadline to file your 2022 return may still be months away, but there’s plenty you can do to get out in front.
The first thing you can do is review your withholding and estimated tax payments. It’s important to withhold enough from your paychecks or pay enough in estimated tax, since federal taxes are pay-as-you-go. Not doing so in either regard can result in you being charged a penalty.
“Early preparation helps you know your tax position to avoid surprise tax liabilities, as well as the underpayment of estimated tax penalty,” said Huishan Huang, a senior accountant at Renner. “If you are self-employed, we may help come up with some strategic planning for the year-end.”
Withholding represents the amount of federal income tax withheld from your paycheck, retirement income or other sources. The amount of income tax withheld from your regular pay depends on two things:
- The amount you earn.
- The information you give your employer on Form W–4.
You should review your federal withholding each year to make sure you’re not having too little or too much tax withheld.
Huishan said taxpayers should review their tax withholding from Form W-2 and/or their retirement distribution from Form 1099-R to make sure they don’t get hit by the large tax due by the due date.
“If your W-2 or 1099-R don’t (have enough withheld), pay the fourth quarter estimates by Jan. 15, 2023, or adjust your withholding,” Huishan said.
The IRS Tax Withholding Estimator is a useful tool to help decide if you should make a change to your withholding. It guides you, step-by-step, through the process of checking your withholding. It also provides withholding recommendations to help aim for your desired refund amount when you file your 2022 return.
“For simple tax returns, the IRS Tax Withholding Estimator is (a) convenient tool to use,” Huishan said. “Otherwise, please consult your tax advisor.”
You can check with your employer to update your withholding or submit a new Form W-4, Employee’s Withholding Certificate.
As a taxpayer, you may need to make quarterly estimated tax payments in a few situations:
- If the amount of income tax withheld from your salary or pension isn’t enough.
- If you receive income such as interest, dividends, alimony, self-employment income, capital gains, prizes and awards.
- If you are self-employed.
“Why not pay the money in as you go and avoid a large tax bill in April?” Paige said.
Estimated tax payments are due from individual taxpayers on April 15, June 15, Sept. 15 and Jan. 17. You can make estimated tax payments using Direct Pay or the Electronic Federal Tax Payment System. You can visit IRS.gov for other payment options. There’s more to know about this. Contact Renner and Company here to learn more about getting ready for tax season.
© 2022 Renner and Company, CPA, P.C. All Rights Reserved.