What do they say? The two things we cannot avoid are death and taxes?! Taxes are the topic we will consider today. Taxes touch our lives when we make money, spend money, own property and invest. As we approach Q4, let’s consider a few specific areas to review to make sure we are on target for filing 2018 personal taxes.
The IRS has actively been posted awareness articles urging us to withhold enough taxes since this summer. Now, they are also posting a warning for retiree’s. Be sure you’re withholding enough tax from your pension or annuity, or else face a nasty tax bill next spring. Rather than paying the amount owed every quarter, filers can use Form W-4V to withhold a flat rate from each check: 7 percent, 10, percent, 12 percent or 22 percent.
Retirees receiving a pension payment or an annuity can opt to have taxes withheld from their income, using Form W-4P and electing the number of allowances they would like to claim. The more allowances you take, the less money you’ll have withheld. If you’re over 70½, you’ll have to start taking required minimum distributions (RMD) from your qualified retirement accounts. Those who don’t actually need the cash have a variety of options as to how best use the payment.
Here’s a strategy: Instead of making estimated quarterly tax payments, use all or some of the RMD at the end of the year to pay the bill. In this case, you would notify the custodian holding your retirement savings that you would like to withhold taxes from the RMD. This way, the IRS treats it as though you’ve been making the payments all year.
Be careful: If you were to deposit the RMD into your bank account and then write a check for the year’s estimated taxes, you could face penalties for all the quarters you missed. And, do remember that the RMD itself is a taxable payment!
Reminder to all who are working, familiarize yourself with the new withholding tables from the IRS. These, along with Form W-4, guide employers as to how much tax ought to be pulled from your paycheck.
Making a determination about the amount you need to pay in tax is an art: If you withhold too much, you end up with a large refund next April. Pay too little, and you could owe the IRS! The benefit for you is when you automate those tax payments, you’ll know you’ll make them faithfully.
If you own a home, property taxes are paid annually. When tax assessments aren’t adjusted frequently, values may not reflect those of identical properties near you. Your local tax assessor’s office can help you understand your bill. Typically, they require a few things to review your property tax bill.
- An independent appraisal of your home and property
- Original construction plans
- Comparable recent sale prices on nearby homes similar to yours
Helping you assess where you are today and what’s important to consider moving forward is what I love to do. Let’s get ready together!
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