Turn next year’s tax refund into cash in your pocket now
A tax refund, to be sure, feels like getting an influx of cash, and the bigger the check, the better. But it also means you are essentially giving the government an interest-free loan for close to a year. Keeping those dollars throughout the year is much better option for your financial well-being.
Now is the time to make a change in your withholding or estimated tax payments to begin collecting your 2017 refund now.
Reasons to modify amounts
It’s particularly important to check your withholding and/or estimated tax payments if:
- You received an especially large 2016 refund,
- You’ve gotten married or divorced or added a dependent,
- You’ve purchased a home,
- You’ve started or lost a job, or
- Your investment income has changed significantly.
Even if you haven’t encountered any major life changes during the past year, changes in the tax law may affect withholding levels, making it worthwhile to double-check your withholding or estimated tax payments.
Making a change
You can modify your withholding at any time during the year, or even several times within a year. To do so, you simply submit a new Form W-4 to your employer. Changes typically will go into effect several weeks after the new Form W-4 is submitted. For estimated tax payments, you can make adjustments each time quarterly payments are due.
While reducing withholdings or estimated tax payments will, indeed, put more money in your pocket now, you also need to be careful that you don’t reduce them too much. If you don’t pay enough tax during the year, you could end up owing interest and penalties when you file your return, even if you pay your outstanding tax liability by the April 2018 deadline.
The best advice we can offer is don’t go it alone. If you’d like help determining what your withholding or estimated tax payments should be for the rest of the year, please contact Tony Constantine, CPA, Ciuni & Panichi, Inc. Tax Partner at firstname.lastname@example.org or 216-831-7171.
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