Take Advantage of your W-4

To comply with Internal Revenue Service Circular 230, we inform you that any tax advice contained on this website is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing or recommending to another party any tax-related matter(s) addressed herein.

If you end up owing a large amount in federal or state taxes at the end of every year, or receive big refunds, you should consider updating your W-4 with your company (if you are self-employed, see post on making estimated payments).  You can complete a pro-forma tax return with estimates of your income, exemptions, deductions, etc., and contribute any extra amount you think you will owe.  To do this, run the pro-forma (or have an accountant do it), and divide the additional amount you will owe by the remaining paychecks you have in the year.  Your company should allow you to designate an additional amount in federal and/or state taxes that you want withheld on each paycheck.  If you typically receive a big refund, consider taking more allowances so you have less money withheld.  It is always best to come as close as possible to a zero dollar refund or payment each tax year so that you are not giving the government a no-interest loan all year, or are not pulling from your savings to make big tax payments.

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