tax planning

One truth becomes apparent at tax time: Taxes are complicated. Even if the tax code were to never change, your bracket, filing status, or withholding might. Common life events like marriage, divorce, and your children leaving the nest can mean that you need to adjust your withholding. Knowing when to adjust your withholding is an important thing to understand about taxes in retirement: If too much money is withheld, you’ll have to wait until after you file your taxes for a refund. If not enough is withheld, you could potentially owe money come tax time. Here are 4 reasons why you might need to adjust your withholding.

You’ve Become an Empty Nester

The good news is that your children are finally independent adults – but that could potentially be bad news when it comes to your taxes. Remember that you might need to adjust your withholding once you can no longer claim the child tax credit. If you qualified for the earned income tax credit in the past, check to see if you still qualify based on your number of eligible children and income.[1]

 You’ve Gotten Married or Divorced

A change in marital status could mean that you need to adjust your withholding.[2] Marriage or divorce might alter your household income. Or, if one spouse is earning more income than last year, your overall household withholding may increase. But, if one spouse retires, your overall withholding could potentially decrease. If you are divorced, keep in mind that alimony payments are no longer tax deductible for the payer, and recipients no longer have to declare payments as income.

Increase in Non-Wage Income

Some examples of non-wage income are stock dividends, side business income, and interest. If your non-wage income increases, you may need to increase your withholding in order to avoid a surprisingly large tax bill come tax time. Keep in mind that you could have to pay a penalty if you haven’t already paid 90% of your tax bill by the end of the year.[3]

Partial or Full Retirement

If you’ve gone from working two jobs to one, you might have to adjust your withholding. You can’t claim the same allowances for both jobs, but you may split allowances between the two. If you go from working two jobs to working one, you might be able to claim more allowances on your remaining job. In retirement, keep in mind that pension and annuity payments are subject to withholding just as wage income is.[4]

These are just four reasons why you might need to adjust your withholding. A financial advisor can assess your unique situation and find out if you need to adjust your withholding. The only thing worse than paying too much in taxes is being surprised that you’re paying too much in taxes. We take your tax burden into account when creating your retirement. Schedule a complimentary financial review to find out how you can pursue long-term tax minimization strategies.

Lake Point Advisory Group is a tradename. All services provided by Lake Point Advisory Group investment professionals are provided in their individual capacities as investment adviser representatives of Mercer Global Advisors Inc. (“Mercer Advisors”), an SEC-registered investment adviser principally located in Denver, Colorado, with various branch offices throughout the United States doing business under different tradenames ,including Lake Point Advisory Group.

This material is provided for informational purposes and is not an offer to sell or a solicitation of an offer to buy an interest in any security or to engage in any investment strategy. Such an offer may only be made at the time a qualified offeree receives a confidential private offering memorandum or other appropriate disclosure. This report is intended as a summary; it does not purport to be complete. Information contained herein is believed to be accurate and/or derived from sources which we believe to be reliable; however we do not warrant the completeness or accuracy of such information. Opinions expressed herein do not necessarily reflect those of Lake Point or Mercer Advisors. You should not construe this presentation or any other communication received in connection with Lake Point as legal, accounting, tax, investment, or other advice. You should consult with your own counsel and advisors regarding such matters. Past performance is not necessarily indicative of future results. No representation is made that any investment will or is likely to achieve the same or similar results in the future. Investments cannot be made in an index. Alternative investments are subject to greater risks than those associated with traditional investments and are not suitable for all investors.

2020-06-29T22:29:02+00:00June 19th, 2020|Tax Strategies, Taxes|