The header photo was taken at Wrigley Field home of the Cubs on July 4th 2017. I was in attendance at the Chicago Cubs vs. Tampa Bay baseball game and took this photo.
Half the year has passed which provides a good checkpoint on withholding to date or tax estimates paid to date. Has your family paid enough in Federal and Stateincoone tax through June 30th 2017 so that a penalty and interest will not have to be paid when you file your taxes after the end of 2017. Keep in mind the IRS expects the taxpayer to match their Federal tax payments to the income earned during that period. If for some reason a person pays no taxes on some of the income earned that will be taxable and tries to make it up before December they can incur a penalty and pay interest on the deficiency.
How do you determine what your midyear income year to date is? Look at your paystub for the last pay period in June 2017. Most employers show the earnings year to date on each pay stub. As an example if that stub shows year to date earnings of $25,000 and Federal withholding of $4,200, and State withholding of $1200, you need to see if those tax amounts are adequate?
One way to establish your estimated annual income is to double what you have earned during the first six months and also double the tax amounts. Then determine if you think you will have enough deductions to itemize on your Federal Tax Return. Estimate your annual itemized deductions Contributions, Allowable Tax Deductions, Tax Preparation, Medical Deductions in excess of deductible percentage, casualty losses, employee expenses, and any other items that may be deductible such as auto expenses with your use your car for your job. Total the estimated annual amount for the deductions and see if they exceed the Standard Deduction for your tax status. If the itemized deductions do not exceed the Standard Deduction then you may not need to keep track of the itemized deductions, just use the Standard Deduction.
Use your estimated annual income for your Federal Form 1040 deduction, compute the amount allowed for personal exemptions for your family and get a sub-total. Then deduct the Standard Deduction from that sub-total. The resulting total will be you estimated Taxable Income. Then look in the Federal Tax Table for tax year 2016 for the tax status you represent for the tax on that Income. Your tax status might be Single, Married filing jointly, Married filing Separately, Head of Household, etc.
If you decide you are going to be able to itemize deductions you might follow the same procedure as for those that know they will taking Standard Deduction. You can adjust the estimated Taxable Income by the amount of deductions in excess of the Standard Deduction and see how your estimated tax comes out for your tax status.
IF YOUR CURRENT WITHHOLDING AMOUNT DOES NOT EQUAL 50% OF THE ESTIMATED TAX DUE, THEN YOU SHJOULD FILL OUT A FORM W-4 REQUESTING AN ADDITIONAL PERSENTAGE BE DEDUCTED FROM YOUR PAY THAT WILL RESULT IN THE ESTIMATED WITHHOLDING ABOUNT BY YEAREND 2017. SINCE MANY STATES BASE THEIR TAX ON THE FEDERAL RETURN, POSSIBLY IT IS A GOOD IDEA TO INCREASE YOUR STATE WITHHOLDING BY THE SAME PERCENTAGE.
If your total estimated taxes withheld equal at least 90% of the estimated tax liability, you might defer making changes in Federal Withholding until you see how you are doing at the end of the third quarter after September 30th 2017 There would still be time to change your withholding for a small amount before yearend.
Tables that show what the amount per exemption, filing statuses, and the Standard Deduction amounts by category appear here http://www.obliviousinvestor.com/2016-tax-brackets-standard-deduction-personal-exemption-and-other-updates/
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