Laura answers tax questions from readers, listeners, followers, and group members that will help you understand how to pay less tax, defer it, or to boost your tax refund and save more money every year.
You can’t avoid taxes, but there are many ways to legally pay less so you keep more of your hard-earned money.
In this post, I’ll answer some common and not-so-common questions about taxes from Money Girl readers, podcast listeners, Twitter followers, and private Facebook group members. This Q&A will help you understand how to pay less tax, defer it, or boost your tax refund every year.
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Question #1: Chesley says, “My W-4 says that I’m married, but I’ve actually been divorced for a few years. Is it important to update that—or is the status I put on my tax return what really matters?”
The filing status you enter on your tax return is what’s most important because it determines how much tax you’ll owe. However, if you’re an employee, you should update your W-4 any time you have a life change, such as getting married or divorced, having a child, or earning more or less income. In fact, the IRS says you’re supposed to make W-4 updates within ten days after a major life event.
The amount of tax your employer withholds from your pay depends on your income and the information you submit on your W-4, such as your marital status and how many allowances you have.
If your W-4 doesn’t accurately reflect your situation, you could have too little or too much tax withheld. Not paying enough means you could get a big, unexpected tax bill. Or, if you overpaid during the year, you’ll end up with a tax refund.
While a refund sounds good, it simply means that you gave Uncle Sam an interest-free loan on your money throughout the year, instead of using it for your own good.
So be sure to adjust your withholding if you get big tax refunds every year. That’s an easy way to give yourself a raise! Save or invest the money instead of letting the government use it.
However, your withholding typically won’t be correct down to the penny. That’s because the worksheets don’t account for every possible situation, such as having additional taxable income from interest, dividends, alimony, unemployment compensation, or self-employment income.
You can update your withholding anytime during the year by completing IRS Form W-4 and submitting it to your employer. If you need help, use the IRS Withholding Calculator or ask your human resources or payroll department.
See also: What Is the Marriage Tax Penalty?