Financial Literacy Month: My 2016 Tax Experience

Financial Literacy Month (1)

 

This year, I decided to go try something different with filing my taxes because things got a bit complicated in 2015 with my employment since had so many jobs. I usually use online tax preparation software. But this year I decided to go get them done in person. I heard about a free tax preparation program called VITA- Volunteer Income Tax Assistance. You can use the service if you make under a certain amount yearly, somewhere in the neighborhood of $54,000/year.

Overall the experience was okay but it ended traumatically. I had never owed taxes before, so when I found out I owed $1,502…I cried so much on the inside. But really though I was furious! I didn’t understand why it happened but I just agreed to pay it in full on April 15th. This was before I made this blog and had learned about payment options. As they say Hindsight is 20/20.

So how can I prevent this nonsense from happening in the future and getting a surprise tax bill like that? I’m not a tax expert, so how can I set myself up better for next tax season? I did lots of searching and found out the IRS has a tool to help you with this.

But let’s backup and start from the beginning to define some terms so we’re all on the same page.

W2: This is the form you get from your employer at the beginning of the year with all the information about your wages/salary and the taxes you paid in the prior year.

W4: This is one of the many forms you fill out when you’re just getting hired, this tells your job how much to take out of your paychecks for taxes.¬†You can adjust it whenever you want. So if you read this post and go through the tool and realized you might need an adjustment, go for it. Just contact your HR manager to help you with that.

It’s important to adjust any time you have a change in life events. Examples are getting married, having a baby, your children move out and no longer dependents. Stuff like that.

Withholding: This is the amount that is taken out of your check and sent to the IRS that you assigned on your w4 form.

When you used the tool did you find it that your withholding is set properly for your income level and your financial obligations? If not, what do you need to do to fix it? Comment or Tweet me, I’d love to know!

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