Many Americans will get an IRS refund each spring. Even still quite a few people will receive a tax bill. Here’s how to lessen the chances of this happening to you and what to do if you owes taxes.
Change your withholdings
If you owe money to the IRS, one reason may be that you are not withholding enough money from your paycheck. Withholdings help you pay for taxes at the end of the year. Withholding less means you get more take-home pay with each paycheck, but it may also mean you end up owing money to the government come tax time. Use the IRS’ withholding calculator to help you figure your federal income tax withholdings so your employer can withhold the correct amount from your pay.
Know your deductions
There are certain deductions that are allowed regardless of whether you itemize on your taxes. Such deductions include IRA and qualified pension contributions, student loan interest, moving expenses, alimony and medical savings account deductions.
See if it pays to itemize
While the standard deduction is certainly easier, it may pay to itemize. Expenses that can be itemized include mortgage interest, property taxes, charitable contributions, state and local income taxes, and medical expenses. To determine if itemizing would be worthwhile, take a look at Schedule A of IRS Form 1040. If you’re still not sure, do it both ways, then take the higher amount on your taxes.
Make your payments on time
If you owe money this year, note that there is a penalty, plus interest, for not paying on time, as well as for not filing at all. If you cannot pay the entire amount due, it may be in your best interest to get a loan from your Credit Union to pay the bill in full, rather than make installment payments to the IRS. That’s because the IRS charges interest, plus late-payment penalties, on the amount owed.
Article provided by Local Government Federal Credit Union. The advice provided is for information purposes only. Contact your tax advisor for additional guidance.