Figuring that you owe a big chunk of money when it comes time to file your returns can be a blow to the heart, the head and the pocketbook. If you want to get your tax liability close to zero during filing season, you must plan and calculate at the start of the tax year.
Get together your tax data. You'll need past paystubs and tax returns, retirement plan and health savings plan information.
Find a tax withholding calculator. The Internal Revenue Service website offers such a tool, as do some personal finance sites.
Plug in the required data. In addition to employee and non-employee income estimates, you will need to input retirement plan and health savings plan contributions, tax withholding amounts and even unemployment compensation. The IRS calculator also requires you to estimate deductions such as medical and dental expenses, if you plan to itemize.
View the income tax figure on the resulting screen. Divide that figure by the number of pay dates that remain in the current year. Enter the result on Line 6 of Form W-4 and submit the new W-4 to the payroll department. Your paycheck withholding will increase by the specified amount each pay period, leaving you with a tax liability close to zero at filing time.
Items you will need
- Form W-4
- Creatas/Creatas/Getty Images
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- How to Calculate Quarterly Estimated Taxes
- How to Estimate Tax Liability Form 4868