Three Important Tax Tips You Can Apply Now to Avoid Paying Higher Taxes in 2009

 Three Important Tax Tips You Can Apply Now to Avoid Paying Higher Taxes in 2009

Obviously we are not ready for any unpleasant surprise when we file our taxes. We always remain optimistic for a nice and attractive tax refund and we never want to end up paying tax balance. Generally, the tax refund takes place only when the taxes paid plus the available tax credits are more than what we owe towards taxes. If this Doug Witham is not true, then we owe a tax balance.

With busy life style and more pressing issues around, we hardly think about this tax refund/balance payment situation until the end of the year. But if we want to be able to avoid unpleasant surprise (tax balance), then we really need to be little more proactive and keep an eye throughout the year, on what increases our tax liability. Here are some areas that need our monitoring.

Monitor Pay Check Tax Deductions: You need to make sure that right taxes are withheld from every paycheck. Please make sure that Federal Income Tax deduction is in compliance with Federal Income Tax withholding table and your W-4. If necessary, call your Payroll Company to have correct and better understanding of this issue. If necessary, submit new W-4 for voluntary higher tax deduction.

American Recovery and Reinvestment Act: One of the the other possible reason for under deduction of Federal Income Tax (FIT) could be the new withholding table under the American Recovery and Reinvestment Act reduces the Federal Income Tax withholding (FITW) to reflect the ‘Make Work Pay’ tax credit. With this, some of the employees might end up with under deduction of taxes and resulting in possible penalties. Employees most likely to be affected are: Two-earner married couple, Individuals with more than one job, A dependent on another’s tax return (they do not qualify for the credit but you will withhold as though they were), Individual receiving pension, and/or Economic Recovery Payments. Individuals falling under these categories need to review FITW. If it is too late to submit a new W-4 for higher tax deductions, please see if you can make some estimated tax payments to save some possible late fees and penalties.

Hidden and silent increase in tax liability: Many times the following sources of Income have inadequate or no Federal Income Tax withholding from income.

* Taxable Interests and Dividends
* IRA Distributions: If not reinvested, this attracts additional tax penalty.
* Capital Gain
* Business Income
* Alimony received
* Unemployment compensation (over $2400)
* Pensions and Annuities

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