With three months left in 2017, most people aren't even thinking about their taxes. Yet now is a smart time to do tax planning, and the first step is to get a quick estimate on how much in taxes you'll owe and whether you can expect to get a tax refund. Below, you'll find a couple of calculators designed to give you an early start on your taxes by providing you with valuable information about the size of your tax bill and how much you'll get back -- or have to pay -- next April. By using them, you'll be able to plan out your tax season and take steps to change your tax liability before 2017 ends.
How much will you owe in taxes?
The first step in good tax planning is to know what you're going to have to pay Uncle Sam over the course of the year. This tax-planning calculator will take your estimated gross income and use family information to come up with the correct tax liability.
A simple example will show how easy this calculator is to use. Say that you're married with one child and have total income of $50,000. You contribute $3,000 to a 401(k) at work, and you take the standard deduction. When you enter these figures into the calculator, you'll find that your taxable income after the standard deduction and personal exemptions amounts to $22,150, which works out to $2,390 in income tax. However, with a child who's eligible for the child tax credit, you can reduce that tax bill by $1,000, with total liability of just $1,390.
The calculator takes care of some more complicated provisions that apply to higher-income individuals, including potential reductions in itemized deductions and personal exemptions. It can't handle all of the intricacies involved on certain tax returns, such as investment income that's taxed at a preferential lower tax rate, but it will still give you a good starting point of what you'll owe the IRS.
Image source: Getty Images.
Will you get a refund?
The other half of the equation you'll need to know is how much money has already been credited against your tax bill. Most employees have money withheld from their paychecks, part of which goes toward paying federal taxes. In many cases, the amount withheld is greater than the eventual liability, and that's why so many Americans get refunds each and every year. The following calculator is the place to begin:
Editor's note: The following language is provided by CalcXML, which built the calculator below.
* Calculator is for estimation purposes only, and is not financial planning or advice. As with any tool, it is only as accurate as the assumptions it makes and the data it has, and should not be relied on as a substitute for a financial advisor or a tax professional.
Again, using an example can be helpful, so let's use the same scenario we discussed above. Say that you had a total of $2,500 withheld from all of your paychecks over the course of the year. That's a fairly realistic scenario because it takes into account the withholding exemptions you would have claimed for yourself and your family, but it doesn't incorporate the child tax credit money that you can get if you have a qualifying child.
When you run the numbers, the answers are predictable. As we saw above, your total tax liability amounts to $1,390. If you've paid $2,500, then that leaves you due a refund of $1,110.
Things to consider with your taxes
Once you have answers to these two key questions, the next issue is what to do about your finances. Here are some things to think about:
- If you're going to have a big tax bill, consider moves like putting more money in a traditional 401(k) or IRA in order to reduce your taxable income. Similarly, look for deductible expenses that you can load into the current tax year.
- If you don't want as big of a refund as you're going to get, make changes to your withholding at work to have less money taken out of each paycheck. That way, you'll get your hard-earned money back over the course of the year, rather than having to wait until you get a refund check from the IRS.
- Conversely, if you're going to owe money, arrange to have your withholding boosted for the last few months of the year. That way, you won't have a big tax bill at the end of the year to pay. You'll also avoid any interest and penalties that can result if you underpay your taxes over the course of the year.
It might seem too early to deal with taxes, but it's actually a perfect time. Let these two calculators help you get your taxes in order sooner rather than later, and you'll be in a much better position to enjoy tax season early next year.
