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Looking for something specific? Check out some of the links below to learn more about some common questions and concerns.
It is crucial to accurately estimate the amount of tax that should be withheld from your pay. If you need more tax withheld, you could end up owing a large sum, including penalties and interest, when you file your tax return. To determine the correct withholding amount for your salary or wages, complete Form W-4 worksheets and provide updated information to your employer if your circumstances change. Also, familiarize yourself with IRS Publication 919, which guides withholding.
The amount of income tax your employer withholds from your pay is based on your earnings and the information you provide on Form W-4, including your filing status and withholding allowances. If you correctly complete Form W-4 and do not have significant nonwage income, your employer will likely withhold an amount close to the tax you owe on your return.
There are a range of tax-saving strategies you can consider. These include maximizing deductions, such as charitable donations and business expenses; contributing to a retirement account, such as a 401(k) or IRA; and selling losing investments to offset gains from other investments.
A tax credit is a reduction in the amount of tax that you owe. It is different from a tax deduction, which reduces the amount of income that is subject to tax. Tax credits are generally more valuable than tax deductions because they directly reduce the amount of tax that you owe, rather than just reducing your taxable income.
There are two types of tax credits: nonrefundable and refundable. Nonrefundable tax credits can only be used to offset the amount of tax that you owe, and any excess credit is not refunded to you. Refundable tax credits, on the other hand, can be used to offset the amount of tax that you owe, and any excess credit is refunded to you as a payment.
If you wish to amend a prior tax return, you can do so within three years of filing the original tax return. You should do this if you overlooked a deduction or credit that applies to you, such as an education tax credit or child care credit. File form 1040X and supply the correct numbers on the form, along with an explanation of how the mistake happened. If the changes to your return are significant enough, you may be required to include payment for any taxes due resulting from the change in filing status or income amount.