The tax code changes that took effect January 1, 2013 resulted in many things, one of which was the expiration of the 2% payroll tax holiday. That means Americans are seeing an addition 2% taken out of their pay checks. How can you make up that 2%? Sandy Furuya, Senior Accounting Manager at Wamhoff Financial Planning & Accounting Services, offers these tips:
1. Maximize Your 401k or Other Deferred Compensation:
• Even though you are taking more dollars out of your paycheck now, remember that these are pre-tax dollars for Federal, State and Local Purposes.
• The larger the contribution, the more tax savings you’ll see at tax time.
• In 2013, 401k Maximum contribution is $17,500. The catch-up provision for folks over 50 is $5500.
2. Safeguard Your Refund
• The amount of tax withheld from your paycheck, or through quarterly estimated payments, should ideally match the amount of your tax liability.
• More than 75% of taxpayers are over-withholding. That means you’re taking money out of your pocket today, and allowing the government an interest free loan on your money until your refund arrives.
• While many people love the idea of getting a refund, “fat” refunds pose a couple of problems: 1) with the increased tax rate, you may need that money now; and 2) large refunds are a security risk.
3. Plan Properly, and Make the Most of your Meeting with Your Tax Professional
• Use the Withholding Calculator on the IRS website at www.irs.gov. Have your most recent pay stubs handy, as well as your most recent tax return. The results from the calculator will help you complete a new Form W-4 to submit to your employer.
• Prepare for your meeting with your tax professional, and bring all sources of income and expenses that you will need to declare on your tax return.
• For income, forms needed may include your W-2’s, 1099-MISC for self employment income, 1099 INT and DIV, 1099-B which show brokerage trades, K-1 for income from a partnership, small business or trust, or 1099-SSA for Social Security income.
• Bring documentation of expenses for things like mortgage interest, college tuition, management fees and charities. If you do not receive a form for these items, make sure you have support.
• Bring cancelled checks or documentation for estimated tax payments.
• The bottom line is that you want to plan appropriately and make sure you are not overpaying – something that’s more important now that tax increases are taking place.