Comment
8
Tweet
3
Print
RSS Feeds

5 things you may not know about taxes

Wednesday - 3/12/2014, 4:30pm  ET

Barry Glassman
WTOP Finance Contributor

WASHINGTON -- If you find yourself getting a refund every year, there could be reasons you haven't considered.

When you first started with your current job, you completed a W-9 form that told payroll what your life is like; if you are married and if you have children. Many people complete this once and never give it another look.

Yet, through the years, you married and had several children, and even took out a large (deductible) mortgage.

The payroll people don't know this. They assume all is the same. As a result, you're earning more and taxes are being withheld based on dated information.

In this case, take the time to talk with your HR people and adjust your tax withholding to reflect your life today.

If you're in a group with sporadic income, such as those with big commissions or bonus checks, you may want to address your payroll deductions. For each paycheck, the payroll people estimate your annual income as if you are earning this amount every pay period.

During the lean pay periods, perhaps 10 percent federal withholding will be deducted. Yet for the bonuses, that withholding could possibly be 39.6 percent. In this case, feel free to adjust your withholding for the big paychecks to better reflect your annual tax bill.

Hint: Use TurboTax's TaxCaster app to estimate your annual income tax: TaxCaster App.

Those who have a big tax bill due this April may have been hit by the higher rates and phaseouts that came into effect in 2013. Those taxpayers in the highest brackets will find:

  • Higher overall federal income tax brackets, now up to 39.6 percent
  • Higher federal capital gains tax rate, now up to 20 percent
  • A new 3.8 percent surtax on unearned income, such as investment interest and dividends
  • And diminishing value of deductions, as these are now phased out (up to 80 percent) as income goes higher

We are hit more with the Alternative Minimum Tax (AMT) in the greater Washington area, and there's little we can do about it. In short, the AMT was put in place a few decades ago to catch uber-wealthy families paying little in taxes. Now, it ensnares 5.7 percent of D.C. taxpayers, 4.9 percent of Maryland taxpayers and 3.8 percent of Virginia taxpayers.

The main culprits are those items used in this "alternative" calculation: state taxes and mortgage interest. Because D.C. and Maryland have such high state taxes and have more than their fair share of jumbo mortgages, taxpayers will continue to find themselves hit by this levy.

Same-sex married couples this year need to file their federal return either filing jointly or married filing separately. This is true regardless of where you currently reside. In D.C. and Maryland, filers will file the same for State tax filing as Federal.

In Virginia, however, same sex couples who were legally married in states that allow legal marriages need to prepare a pretend Federal tax return filing as individuals; then use that information to file the Virginia return. One extra step, but that's how the Commonwealth works.

See this helpful map for details state-by-state: Same Sex Tax Filing Map 1. If you have self-employment income outside of your day job, consider setting up a retirement plan for that additional income. I see this quite often for attorneys who also book speaking engagements or do expert witness work as a sole practitioner. Even if they are fully covered, and maximizing their firm retirement plan contributions, they may be able to set up a Simplified Employee Pension (SEP) to set aside a portion of their self-employment income. Click here for more information.

Editor's Note: Barry Glassman, CFP, founder and president of Glassman Wealth Services in McLean, Va., is a nationally recognized leader in investment and wealth management. His fee-only firm offers successful professionals, executives and business owners financial guidance and resources to effectively manage their family's wealth. Follow Barry on Twitter at @BarryGlassman.

Follow @WTOP and @WTOPliving on Twitter.

© 2014 WTOP. All Rights Reserved.