April 15th is just around the corner. Taxpayers across the country are gathering their tax forms and filing out their tax returns. Some may be surprised to receive a small refund. Others frustrated to realize they owe an unexpected tax bill.
What went wrong? Why would a tax refund be lower than normal? Why would a taxpayer unexpectedly find themselves owing a tax bill?
There are a couple of situations that could lead to these results. Most notably, the impact of the Tax Cuts and Jobs Act (TCJA). This massive piece of tax reform went into effect on last years taxes and left many taxpayers with unexpected returns. The reason for most of these situations was a failure to adjust one’s W-4. Without an appropriate withholding, taxpayers may not have paid enough throughout the year to meet their obligations.
Another common problem: mistaken reliance on withholding tables. Unfortunately, these tables often provide guidance based on a single income. If a household has two income earners, the estimations within the table are likely inaccurate. Some tips to avoid this problem in the future include:
- Use the withholdings calculator. The Internal Revenue Service (IRS) provides a calculator on its website to help taxpayers get a better idea of what they need to withhold from their paychecks. Use the tool and adjust as needed.
- Change with major life events. Marriage, the birth of a child or change in employment status will likely trigger a need to change your W-4.
If you find yourself facing an unmanageable tax bill, know that there are options. Installment agreements and offers in compromise are two examples that can result in a more manageable tax bill. An attorney experienced in these and other avenues to pay off your tax bill can review your situation and discuss your options.