Ah, winter. It's the time of year that a young man's thoughts turn to taxes. It used to be that I would rough out our tax situation as soon as the forms became available. Because I insisted on having too much withheld from my paycheck, I was anxious to know how large my tax refund would be. (This was the only way I could make myself save.)
Next year my financial situation will change drastically. I'll be working less at my day job and working more from home. As a result, I need to begin planning for my tax situation.
To prepare, I've been playing with this handy paycheck calculator from Paycheck City (a site for which I cannot vouch, though it's caused me no trouble). This tool allows you to select your state, the tax year for which you want to experiment, and then enter a variety of parameters to see what happens to your net pay.
Help from the IRS
Believe it or not, the Internal Revenue Service has a fantastic web site filled with useful information. You can find any tax form you might need, for example, and they provide a few web-based tools. You can use their withholding calculator to figure out exactly how much to have held back from your paycheck.
Why would you need such a calculator? Perhaps you run a group of web sites that has begun to produce a not insignificant amount of income, and you're worried of the tax implications. Or maybe you were married or divorced in 2007. Or had a child. The withholding calculator can help you get things figured out. This is also useful if you always end up owing taxes at the end of the year (or if you always get a refund).
In order to use these tools, you'll need to have some information handy, including a recent pay stub and last year's tax return. It's quite possible that you'll find that you need to adjust your withholding by filing a new Form W-4 [PDF].
For more information on this subject, check out:
- The Tennessean: Year-end steps can still reduce size of 2007 income tax bill
- Kiplinger: A do-it-yourself year-end bonus
- Money Girl: How to adjust your withholding
- Bankrate: Adjust withholding so you don't get a big refund every year
This article is part of the Money Blog Network group writing project on year-end money moves.
Author: J.D. Roth
In 2006, J.D. founded Get Rich Slowly to document his quest to get out of debt. Over time, he learned how to save and how to invest. Today, he's managed to reach early retirement! He wants to help you master your money — and your life. No scams. No gimmicks. Just smart money advice to help you reach your goals.