Planning for Year End
Author: Tammy Doss
You may have been out of work for part of the year because of Covid-19, an unplanned layoff, or any number of reasons. Now is a good time to take a good look at a few things that can help you prepare for 2021 income taxes in advance of the year-end.
The first thing to do is always make sure that all off your employers this year have your full legal name spelled correctly, your complete current address and your social security number that you confirm is accurate.
It is a good idea to look at your year-to-date total wages and ask yourself if you should consider contributing to an IRA, Roth IRA or other tax savings vehicle before the end of the year. In the case of 401K contributions, these must be made through your payroll check. It is not too late! You still have a few months to put some or more money away and reap the reward of reducing your tax liability.
No one likes to pay more taxes than necessary. By being aware of the amount of income you have earned this year so far, and knowing your tax bracket, you may need to adjust your payroll tax withholding. If you have been out of work for part of the year you may not owe as much tax as in previous years. On the other hand, if you worked more hours and earned more income you may owe more tax. You can adjust your payroll tax withholding by simply completing a new W-4 for federal taxes and a new DE-4 (California State Taxes) or the comparable form for your state and presenting it to your employer. In doing this you can reduce or increase your tax withholding by completing the form according to the explicit instructions. Once your employer records this information in their payroll system your paycheck may increase or decrease based on your choices. Be sure to consider this change on 1/1/2022. You may want to adjust it again going forward into the new year.
Always keep all of your check stubs from your various employers so you have a record of the information. You will need this information in the future especially if you need to file for unemployment, file taxes in multiple states or are audited. Also, if you are applying for loans, housing or purchasing large ticket items like cellular phones, cars or furniture you may have to show proof of your income at a certain period during the year.
Another reason to keep track of all of your wages, employers (including address and phone number) and dates employed is for later on in life when you qualify for Social Security benefits. One of the main reasons for this is that the Social Security administration sends you a summary of the wages that have been reported by your employers, on your behalf, to the federal government. It is up to you to check this detail for each year and confirm that their records are correct. This is very important because if the Social Security records are not correct it could reduce your Social Security payments.
Taking the time and finding a safe place for payroll records is a must. It takes a bit of effort and space to keep this information, however, it will benefit you at a later date. You are better off to have your own set of records than to rely on your previous employers who may or may not go out of business. Most businesses are additionally only required to keep payroll records for three years. Some keep them longer but don’t count on it.
Just ask one of the Job Shop staff to provide you with new Tax Withholding forms for you to complete now if you are considering making changes soon. Each year we ask that you fill out new forms so that our records are up to date and as a reminder for you to consider your tax situation annually.