Withholding Woes

Ever find yourself surprised when you figure out your taxes? Have you owed a lot more than you thought, or gotten an unusually big refund? If you want to know whether you're having the right amount deducted from your paycheck, take a good look at the numbers.

The Deduction Dilemma

Ignore last year
Due to changes in the federal tax table, the amount you pay to the federal government this year most likely won't be the same as last year. If you want to know what you may owe, and whether you need more or less money deducted from your salary, you can speak with an accountant. Or, you can go to the Internal Revenue's website at IRS.gov and click on the calculator set up for your use.

Life changes
If your life has changed with a marriage or divorce, birth of a child or adoption, be sure to update your paperwork with your employer. The amount of withholding deductions will most likely need to change.

Income changes
Make adjustments if you get a raise or bonus, or retire. Also, plan to pay more if you have rental income or sell a vacation home at a profit. Changes in your income can make a significant difference in the amount that you need to have withheld.

Bright Idea! It pays to be sure you're setting enough money aside. If you are not paying Uncle Sam his share throughout the year, you may find yourself facing a penalty, and having to pay more.

Summer is often equated with beaches, barbecues, and holiday weekends, but what about tax planning? While tax season seems like it's ages away, summer can be a great time to get your documents in order and make sure you have your money in tax sensitive investments. If you start planning now, you can not only avoid that last minute scramble, but you may also be able to save hundreds, maybe even thousands of dollars on your next return.

Summer Strategies

Get organized.

Use this time to get your paperwork in order. You may want to consider paying your bills with credit cards and checks to make sure you have records of your payments. Also, instead of throwing receipts in a shoebox, think about buying a computer program that will track your expenses.

Familiarize yourself with all the deductions you might be able to take and start documenting your expenses in these categories. For example, write down how many miles you're driving for business purposes or charity work. You can deduct these expenses, but only if you remember them. So, start keeping track now.

Evaluate your investments.

Once you paperwork is in order, look at your portfolio carefully. Are you taking advantage of investments that can help you cut back on the amount of taxes you pay? Here are some investments you may want to consider, if you haven't already:

Retirement plans.

Does your company offer a 401(k)? If so, make sure you're contributing as much as you can. A 401(k) is a tax-deferred retirement plan that compounds quickly.

Are you contributing to an IRA? Traditional IRAs are also tax-deferred and are available to anyone under 70 who has earned income. You can contribute up to $2,000 a year. Depending on how much you earn, the money you invest may be tax deductible.

Have you considered a Roth IRA? Although Roth IRA contributions are taxed up front, withdrawals can be made completely tax-free once you reach 59. Keep in mind, you can only contribute a total of $2,000 to a Roth IRA and a traditional IRA combined.

Efficient investments.

If you're in a high tax bracket and have put the maximum amount into retirement accounts, think about putting your money into tax smart investments:

>>You may want to consider tax-free mutual bonds. The income you make is free from federal income taxes.

>>Growth stocks are another option. They don't pay dividends, which are taxed at higher ordinary income rates. When you sell, you will pay capitol gains taxes on any profits.

The gift of giving.

If you have substantial assets, consider giving your children and grandchildren money. The IRS allows you to give each person $10,000 a year without paying gift taxes. Chances are, your kids and grandchildren are in a lower tax bracket and will pay less taxes from any gains on that money.

Enjoy yourself.

Summer is time for fun in the sun. If you can, try to mix business with pleasure. You may be able to get a tax deduction if your trip to that resort was primarily for work. Or, throw a party. You can deduct the expenses, if most of your guests are business associates. The same holds true for a day at the links. If most of players are clients or business associates, you may be able to write that off, too.

Read more smart consumer tips and strategies
from Fox11 Eyewitness News Online

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