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Tax season is coming to an end. Did you get the refund you were looking for? Or did you have to write a check? Since the passing of the American Recovery and Reinvestment Act in February 2009 (also known as “The Stimulus”), the many tax laws, rate cuts and withholding changes left more than just a few of us scratching our heads. What’s your strategy for the coming year?
Some people prefer to write a check to the IRS each year, holding on to the majority of their money until early April so they can maximize their interest. Others plan to get their “taxes due” as close to zero as possible. Finally, some prefer to over-withhold to receive a large refund. (This is a trap! The government earns–and keeps–interest on your prepaid taxes. That’s interest you could be earning.)
1) Know What You Owe.Many laws have changed, so the first step is to review your W-4. Visit www.irs.gov and search for “withholding calculator.” After entering some information from last year’s tax return and your current paycheck, you will see a good estimate of your 2010 taxes and a recommendation for changing the allowances on your W-4. Check with your accountant to make sure you calculated everything correctly.
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