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Life Events & Financial Decisions
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home › Life Events & Financial Decisions › Starting Off Right › Income Tax Planning
Income tax planning basics
 
Proper tax planning will help you keep more of your paycheck and pay less to the Internal Revenue Service (IRS) each year.
Plan Smart:
You control how much is withheld from your paycheck. When you started your job, you completed a W-4 form, which tells your employer how much to withhold for the IRS on your behalf.
To ensure you withhold just the right amount, use the IRS’ Withholding Calculator. Also, take a look at the size of your tax refund each spring.
- Too much: If you get a refund, you arranged for too much to be withheld from your paycheck. It would be better to have a little extra in your paycheck throughout the year, because otherwise, it’s like you’re giving the government an interest-free loan.
- Too little: If you pay too little throughout the year, you’ll be hit with a big bill when you file your taxes, and you could face penalties and interest charges. Use this calculator to see if you’re withholding enough. (Have your pay stub, your current number of withholding allowances, your retirement plan savings percentage, any other payroll deductions, and your state tax rate ready.)
Proper tax planning will help you keep more of your paycheck and pay less to the Internal Revenue Service (IRS) each year.
Plan Smart:
You control how much is withheld from your paycheck. When you started your job, you completed a W-4 form, which tells your employer how much to withhold for the IRS on your behalf.
To ensure you withhold just the right amount, use the IRS’ Withholding Calculator. Also, take a look at the size of your tax refund each spring.
- Too much: If you get a refund, you arranged for too much to be withheld from your paycheck. It would be better to have a little extra in your paycheck throughout the year, because otherwise, it’s like you’re giving the government an interest-free loan.
- Too little: If you pay too little throughout the year, you’ll be hit with a big bill when you file your taxes, and you could face penalties and interest charges. Use this calculator to see if you’re withholding enough. (Have your pay stub, your current number of withholding allowances, your retirement plan savings percentage, any other payroll deductions, and your state tax rate ready.)
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Filing Income Taxes Now
That You're Married
Filing Income Taxes Now
That You're Married
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How to adjust your withholding:
To make changes to your W-4, see your benefits department or download a W-4 from the IRS. Taxpayers generally take one withholding allowance for themselves and each dependent.
You can also allot for deductions you take every year–such as for mortgage interest, property taxes, and charitable giving–if you itemize. Increasing allowances will leave more in your paycheck, while lowering allowances will withhold more.
When to adjust your withholding:
There is no limit on how often you can adjust your withholding, so complete a new W-4 form every time your life changes in a way that affects income taxes, such as:
· Starting a new job
· Having a baby
· Getting married or divorced
· Buying a home
Lower your tax bill:
Saving and investing plans can help lower your tax bill.
- Individual Retirement Account (IRA): Those who meet IRS income requirements and other rules can deduct traditional IRA contributions. (See IRS Web site for deductibility details.)
- Employer retirement plans: Saving in tax-deferred 401(k), 403(b), and 457 retirement plans will lower your tax bill. Every dollar saved will lower your taxable income, and therefore lower your overall tax bill. Run the numbers. SEP-IRAs, Keoghs and Solo 401(k) plans will do the same for the self-employed.
- Hold long-term: If you buy stocks or mutual funds in taxable accounts, hold them for at least a year to qualify for lower capital gains tax rates.
How to adjust your withholding:
To make changes to your W-4, see your benefits department or download a W-4 from the IRS. Taxpayers generally take one withholding allowance for themselves and each dependent.
You can also allot for deductions you take every year–such as for mortgage interest, property taxes, and charitable giving–if you itemize. Increasing allowances will leave more in your paycheck, while lowering allowances will withhold more.
When to adjust your withholding:
There is no limit on how often you can adjust your withholding, so complete a new W-4 form every time your life changes in a way that affects income taxes, such as:
· Starting a new job
· Having a baby
· Getting married or divorced
· Buying a home
Lower your tax bill:
Saving and investing plans can help lower your tax bill.
- Individual Retirement Account (IRA): Those who meet IRS income requirements and other rules can deduct traditional IRA contributions. (See IRS Web site for deductibility details.)
- Employer retirement plans: Saving in tax-deferred 401(k), 403(b), and 457 retirement plans will lower your tax bill. Every dollar saved will lower your taxable income, and therefore lower your overall tax bill. Run the numbers. SEP-IRAs, Keoghs and Solo 401(k) plans will do the same for the self-employed.
- Hold long-term: If you buy stocks or mutual funds in taxable accounts, hold them for at least a year to qualify for lower capital gains tax rates.
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