Navigating tax obligations is never a fun task. It is tempting to put this off until after the New Year, but taking proactive steps after certain life events can help reduce headaches in the future.
This is particularly true when it comes to updating one’s tax withholding status. Two specific examples that should trigger a review and potential change include a change in your professional trajectory and major life events.
How can changing my career trigger a review of my withholding status?
Making a major change in your career such as getting a promotion or accepting a new position, should trigger a review of your withholding status. Generally, as noted in a recent piece by the Internal Revenue Service (IRS), a new employer will require a new Form W-4. Information on the W-4 is used to calculate the amount the employer should withhold.
Why is this important? The change will likely come with higher earnings, better bonuses or other benefits. These increased earnings will likely translate to higher tax obligations. Addressing the increased burden in a timely manner can save you from a surprisingly large bill come April.
What types of major life events trigger a review?
In addition to a career change, other life events can also result in the need for a new withholding status. These events are generally more personal in nature and can include a marriage or divorce as well as a birth or death in the family. These events can impact your overall earnings or the number of dependents that you can claim, directly impacting the amount of taxes you will owe at the end of the year.
Why should I care if my withholding is off?
Withholdings are designed to provide the IRS with the tax payments that are required for the year in small amounts throughout the year. This lessens the chances of getting a large tax bill at the end of the year, ideally making meeting the obligation more manageable. A failure to have an accurate withholding amount can set a taxpayer up for financial issues come tax season. Any resulting tax controversy can be avoided by taking the time to adjust one’s withholding status when needed.
These issues can easily snowball. Financial issues could lead to a failure to make payment to the IRS which could lead to a tax audit which could unveil even more problems. If you find yourself navigating these issues, it is wise to seek legal counsel. An experienced tax controversy attorney, like those at Robert J. Fedor Esq., LLC, can help guide you through the process and better ensure your interests and legal rights are protected.