This year has been an incredibly busy one for me, as I was privileged enough to be invited to 9 different weddings for friends and family. Now that it is finally over and I can breathe a sigh of relief, I think back to one of the most common questions that my newly married friends would ask me: Do I have to change anything for my taxes?
The end of the year provides for most people, a welcome downtime where they can see their loved ones and spend some time relaxing over the holidays. During this time, it is also important that one looks at their finances and begins to plan for the upcoming year. One of the actions everyone, not just newlyweds, should have on their financial to do list, is to evaluate how much in taxes they have withheld in their paycheck.
When everyone starts a job, one of the millions of pieces of paperwork they need to fill out over their first couple of days is Form W-4, “Employee’s Withholding Allowance Certificate”. This form tells your employer your tax filing status and number of exemptions, indicating how much in Federal Income Tax and State Income Tax to withhold from your check per pay period.
Most people ignore this form after the first time they fill one out, however, it is important to update this form after any major life changes, such as marriage or the birth of a child. The IRS considers your status at year end as your status throughout the year, so even though you may not have gotten married until November of this year, you still are taxed as if you were married the whole year.
As part of your overall tax compliance plan, you should also have a plan with your tax advisor that lets you know what your ball park tax numbers look like by year end. This tax planning allows you to better understand your cash flow as you enter next year and to take advantage of any planning opportunities that may exist, while you still have time to impact your liability.
After this planning is complete, or a major life change, you should evaluate your withholdings to make sure that you are not paying in too little, resulting in potential interest, penalties and unwelcome tax bills, or too much, resulting in your paycheck being less week to week that may have you squeezed tight on money or forgoing retirement contributions.
Edward McWilliams, CPA
Ed is a Partner in the firm’s tax and business advisory practice focusing on providing services to middle market private companies across different industries as well as to early stage startups. Ed has over a decade of experience providing tax and business consulting services to these companies of different sizes and across different industries, bringing a broad and diverse knowledge base and strategic solutions to the many complex issues that businesses face.