One Last Tax Duty For April: Adjust Your W-4 Exemptions
If you've attempted to take profits in this volatile market or plan to do some selling in the future, your 2000 tax bill may be drastically different from last year's. And while 1999's numbers are painfully fresh in your mind, now's the best time to revisit your Form W-4 -- Employee's Withholding Allowance Certificate.
If you expect your income to be higher this year than last, you need to adjust the amount of taxes withheld from your paycheck so you won't wind up owing Uncle Sam any unnecessary interest and penalties.
Fortunately, the tax-preparation companies offer some good Form W-4 calculators that take some of the guesswork out of the process.
Don't Crunch YourselfBut enough numbers-crunching. Let the tax-preparation-software companies do the work. You'll need your 1999 tax return and your most recent pay stub to use these products and services because they all require you to estimate your 2000 income. And if you exercised nonqualified stock options or are receiving a bonus this year, don't forget to factor that in. In most cases, taxes on both are withheld at a flat rate of 28%. But if you're in a higher ordinary-income tax bracket, say 39.6%, you'll owe the difference come April. So you'll need to account for that in your planning. hrblock.com's Web site has a pretty conclusive withholding calculator. (And at this point, there have been no reported technical glitches with it, either.) It will calculate a dollar amount that should be withheld from each paycheck for the rest of the year. TurboTax for the Web or TurboTax software that you buy in stores and install on your PC will help you calculate your withholding and print out the completed W-4 for you. Go to the "Miscellaneous" section of the program and choose "Adjusting Your Withholding or Making Estimated Payments" from the EasyStep Navigator. Once you've determined just how many exemptions should be withheld from your salary, check out the withholding calculator from Taxes4Less. The calculator will give you an idea of how your take-home pay will change. Note that this calculator can't factor in additional flat-dollar withholding amounts. The IRS has its own calculator, but it just mimics the oh-so confusing Form W-4. If you prefer speaking with someone, call the live preparers at e1040.com at either 800-531-5166 or 888-893-9645. "They'll calculate the whole thing for free," says Kathy Travis, the site's chief operating officer. You do not need to be a return user. Or stop in a local H&R Block office, where preparers will help you calculate your withholding amount for free. For more information on Form W-4, see this previous Tax Forum and the Internal Revenue Service's Publication 505 -- Tax Withholding and Estimated Tax.
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