For most employees, the annual April tax deadline is the only significant one. Self-employed people, independent contractors and employers have additional accounting deadlines that are equally important. As the calendar year draws to a close, employers must collect updated W-4 forms from their personnel. In many states, an equivalent form is also necessary. In some cases, these new forms are straightforward, but for others, simple paperwork is anything but. A Certified Public Accountant can help tame the tangle of red tape and let business owners and their employees focus on their work, not their tax status.
A W-4 form lets the Internal Revenue Service know about the individual’s filing status, including dependent exemptions, so it’s vital to keep these records updated to ensure accurate withholding. While the form itself is short, it may not always tell the full story, and simple calculations may not be appropriate for every employee. A conventional W-4 form cannot take into account all available deductions, credits and adjustments. If a form contains errors, straightening them out later can be even more of a challenge.
For example, an employee who is married with two dependents might claim four exemptions: one for himself, one for each child and one for his spouse. Although this may seem logical, it would be inaccurate for IRS purposes because marriage automatically confers an exemption, and claiming it again would essentially be claiming twice. When a form contains too many exemptions, the result is withholding too little and paying more in April.
Over-withholding is another issue filers face when handling their own accounting. While claiming fewer deductions up front can result in smaller fees on April 15, it can also strain a family’s finances throughout the year and may not be worth the reduced tax burden in the spring. For some families, over-withholding can occur with a sudden change in financial status. The IRS’ withholding spreadsheets cannot account for sizable itemized deductions, which can create undue discrepancies in tax payments later.
By increasing exemptions on their W-4 forms, taxpayers can hold onto more of their take-home income from week to week. The practice can ease financial stress on individual paychecks, but because taxpayers who do this are borrowing money rather than earning it, that bill will come due in April. Depending on the degree of difference between claimed exemptions and due ones, payments could also include penalties and interest, leading to a heftier tax payment than expected. A professional tax preparer with experience handling every taxation scenario can help establish withholding amounts that maximize take-home pay while minimizing risk.
While standard exemptions on individual tax documents or for typical head-of-household forms are straightforward, some situations are more complex. Double-income households with high earners, blended families, business ownership or households with substantial income from other sources face more complicated tax landscapes and could benefit from the help of an accounting professional. By calculating accurate withholding records on W-4s and optimizing taxpayers’ exemptions, a Long Island CPA ensures better protection for employees, employers, freelancers, independent contractors and anyone who has a more complex tax situation.
To get help with withholding, navigating tax forms or any aspect of calculating taxes, contact a local CPA firm and learn about all available options. A certified accountant can present all possibilities and choose the best one for any taxpayer.
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