While the vast majority of Americans get a refund from the IRS each spring, a lot of people owe taxes instead. To reduce the chances of this happening, consider the following:
Change your withholdings
If you owe money to the IRS when you file your income tax return, one reason may be that you’re not withholding enough money from your paycheck. Withholding less means you get more take-home pay with each paycheck, but it also increases your chances of owing money to the government at tax time. Use the withholding calculator at www.irs.gov to help you figure your federal income tax withholdings and make sure your employer is withholding the correct amount from your pay.
Know your deductions
There are certain deductions that are allowed, regardless of whether you itemize. Such deductions include IRA and qualified pension contributions, student loan interest, moving expenses, alimony and medical savings account deductions. Make sure you’re taking advantage of all of the deductions available to you.
See if it pays to itemize
While the standard deduction is certainly easier, it may be better to itemize. Expenses that can be itemized include mortgage interest, property taxes, charitable contributions, state and local income taxes and medical expenses. To determine if itemizing would be worthwhile, take a look at Schedule A of IRS Form 1040. If you’re still not sure, calculate your tax return both ways, then take the higher amount.
Make your payments on time
If you do owe money in April, note that there is a penalty, plus interest, for not paying on time, as well as for not filing a return at all. If you cannot pay the entire amount due, it may be in your best interest to get a personal loan from your Credit Union to pay your bill in full, rather than make installment payments to the IRS, which include both interest charges and late-payment penalties.