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To Get an “Early” Refund, Adjust Your Withholding

If you’re a small-business owner or have experienced significant life changes this year, adjusting your tax withholding can be a smart move. By making strategic adjustments, you can optimize your cash flow and potentially secure some financial benefits. Here’s how to approach it:

The Benefits of Adjusting Your Withholding

Avoiding an Interest-Free Loan to the Government: Receiving a large refund from the IRS means you’ve essentially lent money to the government without earning any interest. Adjusting your withholding can help you keep more of your money throughout the year, rather than waiting for a refund.

Financial Flexibility: By adjusting your withholding, you can increase your take-home pay and use it for immediate needs or investments. This can be especially beneficial if you have ongoing expenses or want to save for specific financial goals.

When to Consider Adjusting Your Withholding

  1. Large Refund from Previous Year If you received a hefty refund for the 2023 tax year, it may be a sign that you’re over-withholding. Adjusting your withholding for the current year can help you retain more of your earnings throughout the year.
  2. Significant Life Changes Major life events such as getting married, divorced, adding a dependent, buying a home, or starting or losing a job can impact your tax situation. It’s crucial to review and adjust your withholding to reflect these changes.
  3. Changes in Investment Income If your investment income has increased or decreased significantly, it may affect your overall tax liability. Adjusting your withholding can help align your payments with your current financial situation.

How to Make Adjustments

  1. Modify Your Withholding You can adjust your withholding by submitting a new Form W-4 to your employer. This form allows you to specify how much tax you want to have withheld from your paycheck. Changes typically take effect within a few weeks.
  2. Adjust Estimated Tax Payments If you make estimated tax payments, you can adjust these payments quarterly. Review your estimated tax payments and modify them based on your updated financial situation and tax projections.
  3. Regular Review It’s a good practice to review your withholding or estimated payments periodically, especially after major life events or significant changes in income.

 

Conclusion

Adjusting your withholding can be a proactive way to manage your cash flow and avoid overpaying taxes throughout the year. Whether you’ve experienced life changes, received a large refund, or seen fluctuations in your income, making timely adjustments can benefit your financial situation. For personalized guidance on adjusting your withholding or estimated tax payments, contact Guerrero CPA at 210-490-7100. Our team is here to help you navigate your tax strategy and optimize your financial outcomes.