Paying more than expected for your 2024 taxes can be avoided by planning ahead, adjusting your W-4 and making use of tax credits and deductions, according to experts. They suggest that tax checking should start early in the year to allow for changes and better preparation for the upcoming 2025 tax season.
Tom O’Saben, the director of tax content and government relations for the National Association of Tax Preparers, recommends tax planning throughout the year. Unpleasant surprises regarding the owed amount or tax refund might signal improper withholding.
Checking your W4 early helps understand the amount being withheld on each paycheck and allows adjustments for better suitability. If you find yourself owing more than expected, consider increasing your withholding by claiming fewer exemptions or requesting your employer to deduct more money from each paycheck.
While ensuring that enough tax is paid to avoid underpayment penalties, it's also crucial not to over-withhold to avoid letting the government use your money interest-free for a year, says Ed Mahaffy, a certified financial planner and chartered financial consultant.
Tax deductions reduce your taxable income, and keeping track of the eligible exemptions can help you pay taxes on less income. Similar beneficial effects can be derived from actions like contributing to a traditional 401K or IRA.
Tax credits, on the other hand, decrease the owed amount. It is, therefore, advisable to explore and use them to further reduce the tax bill.
Despite some finding the tax system intimidating, O'Saben encourages using software or professional help to count all qualifying tax credits to ensure no overpayment.
A mistake in the article misspelled Ed Mahaffy's name was corrected on Jan. 2, 2024.