 Internal Revenue Service IRS tax news. Adjust tax withholding now to pay the proper amount of tax. Adjust tax withholding now. Don't you take that tone of voice with me IRS. I'll have you know my tax dollars pay for your whole like organization over there. Holy crap. Did you just use my tax dollars to give the IRS auditor's guns? Okay. I get your not so subtle point IRS. No need to shove the point through my gut. However, I totally already adjusted my tax withholdings. And yes, before you ask, I have also cleaned my room. I mean, why don't you leave me alone and go harass my brother or something if you got nothing better to do. We're all under the IRS's thumb. You are so under the thumb it's frightening. I mean, at least I've got a thumb. Which isn't good. It's not good. You look stupid. I'm sorry. Because as you would expect from a bureaucratic institution, they spend a good deal of time with their thumb up their bum. Oh, shit. Did you do that? Man, you got to warn somebody before you just crack one off. My mouth was open and everything. And honestly, if we're not careful, we may end up under their thumb while it's perpetually up their bum. Yeah, right. Grimstone. Nobody taught me how to say brimstone. I know what I smell and there wasn't no brimstone and come off no stone either. And that would be really bad. The IRS having constant indigestion, you know, from eating all those entrepreneurs. IR 2022-186, October 20, 2022, Washington. The internal revenue service today urged taxpayers to check their tax withholding while there's time left in 2022 to benefit from any necessary changes. Let's just recap the process here. So for tax year 2022, you might not file the tax return until something like April 15 of 2023. However, if you waited to pay all of your taxes at the point in time you filed by April 15, 2023, you would most likely be subject to penalties and interest, which is why we have to basically pay during the year. In other words, you can think of the filing of the tax return if it was a perfect world, if we didn't have such a complex tax code, as it would be just kind of an information return. In other words, if we had a really easy tax system, which was like a flat tax and it was easy for us to calculate how much tax we owe as we earn our revenue, we would just pay the taxes throughout the year. And then at the end of the year, in a similar way as with like payroll taxes, for example, we would file an information return by April 15 of the following year saying, hey look, this is how much I earned during the year. I already paid you that amount and there would be no refund and there would be no amount due in a perfect world if we had an easy tax system. However, the income tax is not a flat tax and it's got a whole lot of other components related to it, including deductions and credits and whatnot that complicate it greatly. So it's near impossible, it's basically impossible even with a fairly basic tax return to get the tax withholdings to be perfect throughout the year. So what we have to do then is pay a little bit more and that's why we have a refund. So in other words, we're not shooting for a refund just so we can get some money back at April 15. We're shooting for a refund so that we avoid the penalties and interest of paying too little during the year. Now the IRS in order to enforce the payments has pressure leverage on the payer of the money. So in any business transaction, we've got someone's going to be generating revenue, the other person's going to have an expense. The expense side, the person that's paying is where the IRS has the leverage. So if you're an employee, for example, the person that is paying, your employer has an expense of payroll expense and you then are the employee. And if the IRS has the leverage on the employer because they can say, hey, look, if you want a deduction for the payroll taxes you paid, we want you to do X, Y, and Z. And employee-employer relationship, that includes basically taking the withholdings so they make the employer into their tax collector. But the employer is not totally responsible because you're responsible for telling the employer information in terms of how much they're going to take out of your paycheck on a period by period basis. And so that's going to be your responsibility and you can do a W-4 kind of calculation so the employer can do their responsibility, which is to withhold some of your money and be the tax collecting agent. So we've had a lot of changes in the last couple years in terms of the economy in general, people's job situation, as well as the tax code. So that means it's going to be a lot more difficult because there's more uncertainty about what's going to happen in the future because it's not as easily predicted in the past. So there's a whole lot more people that would probably benefit from updating their withholding calculation, looking into what their withholdings are and trying to get that straight because you can't really just rely on the prior year as you would if it was like a stable environment. Okay, that's the general recap here. So an adjustment made now will help people avoid a big surprise such as a big refund or a balanced due at tax time in 2023. So obviously what you want to avoid is a big bill by April 15th of 2023 and if you have a big bill, that probably also means you'll be subject to penalties and interest because the IRS is going to say that you didn't pay enough during the year and that's clearly what you want to avoid. So life brings constant changes to individual financial situations, events like marriage, divorce, new tax law, a new child or home purchase can all be reasons to adjust withholdings. So if things were stable and we had a major life change and that would be something like marriage or there was a divorce because obviously that could change our status or tax filing status and can have a significant impact on our taxes. So we would want to then adjust our withholdings to account for that and then new tax law. Now, this is the one that's kind of relevant to the last few years here. The tax law has been changing greatly in an attempt to adapt to the changes in the environment and so on. So that in and of itself means that even if your life has been fairly stable over this time frame, you're going to want to possibly adjust your withholdings or look into it again because the law, the environment, the tax law has changed greatly, especially for low to moderate income individuals because they've changed a lot of the refundable credits, for example. So if there's a new child, then there's going to be tax consequences or home purchase. That's another big item that you want to consider the tax consequences when you're thinking about the home purchase can all be reasons to adjust withholdings. So tax withholding estimator, the tax withholding estimator also available in Spanish can help people determine if they have too much income tax withheld and how to make an adjustment to put more cash into their own pocket. So in order to do the tax withholdings, the tax returns are quite complex. To do the income tax calculation is quite complex even if you have a basic return. Basic returns used to be a little bit easier because if you had a fairly low amount of income, then you wouldn't have too many tax brackets you would be dealing with and it's a pretty basic calculation. But more and more they're adjusting the low to moderate income side of things with these refundable credits and they have phase outs and whatnot. So the low income side of things can actually get quite complex these days. So you pretty much have to have software to do a good projection. Because remember, if you start a new job or something like that and you start earning money in January, for example, you can't just pay the flat tax rate of how much you earn to the government because you don't know what your highest tax rate, your marginal tax rate will be due to the progressive tax system until you've got total income at the end of the year. So that's one of the complexities for us trying to pay throughout the year. So if you don't have access to tax software, this tax withholding estimator is getting more and more to be basically a projection kind of tax software tool and you can use that to help you to kind of estimate what your withholdings should be and use it then to make any adjustments to like the W-4 for example and talk to your employer about it. So in other cases, it can help taxpayers see that they should withhold more or make an estimated tax payment to avoid a tax bill when they file their tax return next year. So if you work this tool and you say, oh man, I'm going to owe money for sure. So I want to pay it now and why would you want to pay it now instead of by April 15th because you want to avoid the penalties and interest. So you might want to then make an estimated payment. So notice if you are withholding money because you're a W-2 employee, then if they under withheld all year and now it's October, you're going to have to compensate by over withholding in the last few months here in order to have the total average out and hopefully because they're taking it out with withholdings, they won't charge you any penalties and interest related to it. But then you're going to have to in January do it again because in January, then you want to get your withholdings right so they can have even withholdings throughout the whole year. That's just the easiest thing to do. You could try to mess with the withholdings. You could try to say, well, I'm going to try to withhold less in the beginning of the year and more at the end of the year and see if you can kind of game the system if you wanted to in that way. But the easiest thing to do would be, of course, to just have a set withholding throughout the entire year. So if you have to skew the withholdings for the last few quarters, few months here to pay the proper amount, then you're going to have to do this again in January to get it right for the entire year starting 2023. So the tool offers workers, retirees, self-employed individuals and other taxpayers a user-friendly step-by-step tool for effectively tailoring the amount of income tax they should have withheld from wages and pension payments based on their complete set of facts and circumstances. Pay as you go. Hold on a second. I think I swallowed a fly. Any case, taxes are generally paid throughout the year. There's a link to that here, whether from salary withholding, quarterly estimated tax payments or a combination of both. So most people, if you're a W-2 employee, you're going to have withholdings, but if you're a sole proprietor, for example, then you're actually going to have to write a check quarterly to the IRS. It's a really, really painful thing to do. And if you're not used to doing that, and then you start a new sole proprietor business, you want to make sure that you take that into consideration because a lot of sole proprietors just get behind on their taxes because they're just not used to paying their taxes that way because it's already been done through a withholding and they're not used to having to pay the self-employment tax as well. So you really want to... I mean, even a business that starts out doing quite well can be really hampered if they get behind on that. So take that in consideration. About 70% of taxpayers, however, withhold too much every year, this typically results in a refund. The average refund is $2022 is under $3,000. So the reason 70% put too much in is because you can't get it perfect, right? That's the point. And you're trying to avoid penalties and interest, plus the tables that are set up for the withholding tables when you do the W-4 calculations are designed to be a little overpayment because, again, they want the cushion. You want the cushion on the overpayment to avoid the penalties and interest if you underpay. So a few other factors about refunds. Paxpayers, too, do not have to get one. So proper withholding adjustments help people boost take-home pay rather than be over withheld and get it back as a refund. So in a perfect world, you would generally like to get the money in the paycheck because then you get the money sooner. So from a time value of money standpoint, I want to get as much money during the paycheck as I can so that I can do whatever I need to do whatever I need to pay for. And if I have extra money, I can invest it and start earning interest on it. So you don't want to have a huge refund at the end of the year because then you didn't optimize your withholdings because you could have got paid more during the year. But, again, you want a bit of withholding because there's no possible way that you're going to make it exact. And what you don't want to do is get hit with the penalties and the interest and the inability to pay at your end. So while most are issued a 21 days or less from an error-free and paperless tax return, many take longer for different reasons. Taxpayers are advised not to rely on a refund for big purchases. So when tax season comes around, many people often file their tax return and then they see they're getting a refund and they go on a spending spree before they get the money. You don't really want to count the chickens before they hatch or count your eggs because there might be some rotten eggs and the chicken that hatches is like a little evil beast of a bird or something. Anyways, I don't know what I'm talking about. You want to wait until you get the refund, typically, if you can. But, obviously, there are situations where you've got to do what you've got to do. So taxpayers are advised not to rely on a refund. So we've got the direct deposit is the easiest and most convenient way to get a refund. More than 90% of all refunds are issued this way. Paper return processing delays stemming from the pandemic for six months or more. So the IRS is still backed up because they did the whole social distancing thing from the top down and then, which was, you know, so the IRS got hit the hardest with these crazy regulations and what not, well, maybe not hit the hardest, but, you know, in general, whatever. So they're backed up. The IRS COVID-19 operations page offers complete details. There's a link to that here. Other items may affect 2022 taxes. Some unforeseen life events can be a trigger to make withholding adjustments. They include coronavirus relief, coronavirus tax relief. There's a link to that here. Tax help for taxpayers, businesses, tax exempt organization, and others include health plans affected by the coronavirus COVID-19. Disasters such as wildfires and hurricanes, there's a link to that here. Special tax law provisions may help taxpayers and businesses recover financially from the impact of a disaster, especially when the federal government declares their location a major disaster area. Job laws, IRS publication 4128 tax impact of job loss. So clearly, people go through jobs like crazy these days, it seems like. So it's kind of hard to predict what's going to happen from year to year just in the environment. I'm not saying that's anyone's fault. It's the way things seem to be these days. So explain how this unfortunate circumstance can create new tax issues. Workers moving into gig economy due to the pandemic. So a lot of people might be doing more part-time work, might be doing gig work on the side, and so then you got to take into consideration the gig work and the government is doing a lot to try to get a handle on the gig work. The gig work is like the new cash-based business. The government doesn't typically like cash-based business, like a hair salon and the nail salons and massage parlors because if you get paid cash by the end customer, it's hard for the IRS to double-check on you, whereas if you get paid from a business, they can pressure the business to 1099 you at least, if not make you an employee. So the gig work is going to be the new thing where they're kind of trying to strangle hold, get a strangle hold on it, try to make the platforms possibly higher people as employees rather than contractors which doesn't really make sense because it's kind of an intermediary platform and that would totally kill the gig work economy, but that's probably what they'll do at some point. So make the gig work money while you can, but remember you got to report it and you're going to have to pay taxes so do your tax calculations accordingly. So for more information about estimated taxes and tax withholding, see taxwithholding at IRS.gov, there's a link to that here, there'll be a link to this in the description.