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Financial Planning: Check Withholding & Avoid Tax Time Surprises

1040Financial planning does not only include finding ways to help your money grow; it also includes taking care of what you owe. Each year at this time, U.S. taxpayers go through the agony of tax preparation and filing while anticipating the ecstasy of a large refund.

Financial experts try to get U.S. taxpayers to understand that they really need to check their withholding because that anticipated refund is basically an interest-free loan to the government. In a RecordOnline article certified financial planner Laura Medigovich wrote, “A $3,000 refund is the equivalent of giving the IRS an extra $250 a month from your paycheck.”

However, there are other withholding issues that can occur:

Employer error:  Your workplace may not withhold any tax from your check at all. If you are as busy as most of us and have direct deposit, you probably don’t examine paystubs—you just check to see that your pay was deposited. And herein lies the danger: if you don’t take a moment to examine your paystub you could miss out on the some grave errors. We know someone who did not discover that no taxes had been taken out of her pay until tax time. This was not freelance work but work for which money should have been withheld and as a consequence she had to pay more taxes than expected.

Brokerage error: When one client was widowed, the brokerage erroneously stopped withholding taxes from the accounts that had been jointly owned or inherited from her spouse instead of continuing the established level of withholding (since there was no request for a change).

Medigovich recommends consulting the “Time to Adjust Your Tax Withholding?” which can be found at While you may have been advised to check your withholding at the time of a major life event (e.g. marriage), you should check it periodically even if you think not much has changed.

With a Fee-Only financial planner like Claire Emory, MBA, CFA, CFP, you have someone else to look over your financial records and help with tax planning so you can avoid surprises at tax time.