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With the tax burden shifting due to the Jobs Act and Tax cuts, perhaps we can prevent having any surprises going forward. Or should I say, at least be prepared for such surprises in the future. This may not be for everyone, but I think it's still possible to pay very close to, if not exactly how much you owe every year, and in advance. I remember when I was younger that I would look forward to tax season. I'd get some money back, and say "see you next year." Now I'm just trying to get to that magic '0'. I found a pretty interesting article on the subject.
It says that only 6% of Americans actually get to the magic '0'. I just wonder if that percentage also includes those who received a refund. That's more than likely wishful thinking on my part.
Some of these things seem like a no-brainer. Perhaps it might get some of us thinking differently.
If you owe the IRS:
- Decrease the number of personal allowances on your W-4.
- Or, simply ask that a set amount be taken from each paycheck. To figure out how much, take the amount you owe and divide it by the number of pay periods remaining in the current year.
If you regularly get a big refund:
- Increase the number of personal allowances on your W-4.
- The adjustment will give you a bit more cash in each paycheck. Don’t just spend it, but consider opening an account — savings, money market or CD — that will earn you (not the federal government) interest instead.
The IRS provides a Withholding Calculator that could really help you clarify the exact amount of tax you want taken out of every paycheck. Of course, if there are significant life changes coming down the pipeline like marriage, buying a house etc, it may be a little difficult to figure out your precise tax burden in advance.
For those who pay estimated taxes, here's some advice to get you as close to the magic '0' as possible:
This is where meeting with a CPA in the final quarter of the year can be helpful; they can work with you to calculate that last estimated tax payment, taking business expenses and other deductions into account, so you don’t end up inadvertently underpaying or overpaying.
I think ending the tax year with having paid exactly what you owe the government is possible. With some extra effort, and the right tools, it can happen. Does anyone else agree, or has the tax code gotten so out of whack that it's impossible now? Any other tips are welcome as well.