Tax Planning How Should I Change My Taxes if My Income Changes? Read the Article Open Share Drawer Share this:Click to share on Facebook (Opens in new window)Click to share on Twitter (Opens in new window)Click to share on LinkedIn (Opens in new window)Click to share on Pinterest (Opens in new window)Click to print (Opens in new window) Written by Published Jul 13, 2012 3 min read Whether we like it or not, our taxes are largely tied to how much money we make. If you find yourself making more, chances are you’ll need to pay more, and if your income goes down you’ll probably find that you’re paying less. It seems simple enough, but if you’re expecting a major change in income there are a few things to pay attention to so that you can make the most of it. W-4 Form There’s some good news if you’re employed and have taxes taken out of your paycheck automatically. When your income changes in this situation, the taxes taken out will change accordingly. But that doesn’t mean you don’t have anything to worry about. You may still be in a situation where you’re having too much or too little withheld, so now is a good time to check your W-4. You file form W-4 with your employer and this tells them how many exemptions you want to claim so they can calculate how much should be withheld from your paycheck and sent to the IRS. What you enter on this form will largely determine how much of a refund or how much you owe each April, and most people tend to have more money than necessary withheld, resulting in a tax refund. You can use the TurboTax W-4 salary calculator. It will only take a few minutes of your time and it will help you come up with the appropriate number of exemptions so that you can maximize your paycheck without letting the IRS hold on to more of your money throughout the year. While there’s nothing wrong with getting a refund every year, it’s still a good idea to put more money into your pocket every month, which can then be immediately applied to one of your many financial goals without needing to wait for that one refund check each year. For the Self-Employed If you’re self-employed and expecting a change in income, you’ve got a little more work to do. Since your taxes probably aren’t automatically withheld from a paycheck, you’re likely relying on paying quarterly estimated taxes. When your income changes, so too does the amount of money you need to send in each quarter. In the event your income goes up and your estimated payments don’t increase to reflect that, it’s possible you could be hit with an underpayment penalty. While it isn’t an exact science, figuring out how to adjust your quarterly tax payments doesn’t have to be complicated. The easiest thing to do is to simply adjust the tax payments by the same percentage as the change in income. For example, if you’re expecting a 20 percent increase in income, increase your quarterly tax payment by an additional 20 percent. You also need to consider your other tax deductions and credits, but TaxCaster can easily help you estimate if you are taking out enough taxes. There are obviously many other business items and expenses that can change how much tax is to be paid, but if at first you simply increase or decrease your tax payments in-step with the change in income you’ll be in the ballpark. Once you file your taxes at the end of the year you’ll then have a better idea of what those tax payments need to be going forward and you can fine tune it for the next tax year. Previous Post How Dates and Times Impact the Cost of Weddings[Infographic] Next Post Should You Give Your Kids an Allowance for Chores? Written by More from Leave a ReplyCancel reply Browse Related Articles Taxes 101 What are Income Taxes? Taxes 101 Taxes 101: Alternative Minimum Tax Tax Tips How is America's Income Tax Burden Weighted? Taxes 101 Can I File Exempt & Still Get a Tax Refund? Taxes 101 What are Federal Taxes? Income and Investments First Time Investors, Here’s What You Need To Know Ab… Taxes 101 Taxes 101:Tax Brackets Tax Tips Tax Burden By Country (How the US Compares Internationa… Self-Employed Do Creators Pay Taxes on Money Earned? Income and Investments What Income is Taxable and Non-Taxable?