Some tax surprises
Monday, March 22nd, 2010 | tax
Through this tax season, a few of our clients have faced an unwelcome surprise - an unexpected tax bill. Although the reasons vary for each client, the land mines are sometimes built into the regulations. Some examples:
The tables and formulas that determine the amount withheld from your paycheck for income taxes are set up for a family with one wage-earner. If both husband and wife work and declare too many withholding allowances on your W-4 forms, too little may be withheld. This can be an especially annoying problem if incomes fluctuate from year to year. One of our clients saw a $3600 reduction in withholding when the wife’s income fell and the husband’s icnome rose, even though the total household income fell only $4000. Now they are looking at a tax bill instead of a refund when they file their return.
A new tax credit for 2009 is causing unexpected tax bills for some. The Making Work Pay credit can reduce your tax bill by up to $400 ($800 on a joint return). The IRS was nice enought to give it to you a little bit at a time by reducing the amount withheld from each paycheck since April 2009 - did you notice? As a result, some of you who had just enough withheld to cover your taxes in 2008 have not had enough withheld in 2009, and you must pony up the difference by April 15. That’s not the outcome you expected from your good planning.
For some other surprises, take a look at this slideshow at bankrate.com. By the way, this website is an excellent resource for a wide variety of financial information.
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