Tax filing time is upon us again. Were you prepared? Did you owe more money that you expected or was the refund more than you would have liked?
The Internal Revenue Service has a great tool that I think doesn’t receive enough attention. Every year the IRS puts out form 1040 ES. The form states it is to calculate estimated tax amounts due. However, I have used it 20 plus years like a mini tax return to track where I am with my federal tax withholding. I generally do this check mid-year and then about the first week of November.
All you need is your estimated taxable income, estimated deductions, and estimated tax payments. The form is self-explanatory in nature so very simple to use. Once you derive your estimated current year’s tax liability you can see if your current tax withholdings are large enough to meet the amount that will be due when you file your next year’s return. For example if you are paid weekly, multiply the federal income tax withheld by the remaining tax withholdings for the year and add it to the amount that has already been withheld. If you are short you can update your Form W-4 with either a change to your marital status and/or exemptions or add an additional amount you would like withheld each pay period. Likewise, if you are over withheld you can adjust Form W-4 as well.
The IRS also offers an online Tax Withholding Estimator that essentially does the same thing as the 1040 ES. Here is the link to the estimator.
By using the form 1040 ES, you can take control of your tax withholding and ensure that you're prepared for tax season. Whether you use the form itself or the IRS's online Tax Withholding Estimator, monitoring your tax withholdings can help you avoid any surprises come tax season. So take the time to review your tax withholdings and make any necessary adjustments to ensure that you're on track to meet your tax obligations.
Download a copy of Form 1040 ES for your use.