How to Pay the Exact Amount of Taxes You Owe in Advance

  

Now that most of us have paid our taxes—and now that we understand how our tax burden has shifted thanks to the Tax Cuts and Jobs Act—it’s time to start planning for Tax Year 2019.

For some of us, that might mean trying to end the 2019 tax year with a bill of exactly $0—that is, you’ve already paid everything you owe in taxes and no more. You don’t get a refund, but you don’t have to pay any additional taxes. It’s kind of like getting a perfect score on tax payment.

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A recent SmartAsset study reveals that only six percent of Americans manage to achieve that perfect tax return. Montanans, for some reason, do better than the rest of the country; nearly eight percent of Montana residents paid the exact amount of taxes they owed in 2016.

If you’re the kind of person who wants that exclusive—and elusive—$0 tax bill, Bankrate has some suggestions to help you get started:

If you owe the IRS:

  • Decrease the number of personal allowances on your W-4.
  • Or, simply ask that a set amount be taken from each paycheck. To figure out how much, take the amount you owe and divide it by the number of pay periods remaining in the current year.

If you regularly get a big refund:

  • Increase the number of personal allowances on your W-4.
  • The adjustment will give you a bit more cash in each paycheck. Don’t just spend it, but consider opening an account — savings, money market or CD — that will earn you (not the federal government) interest instead.

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You might not know that IRS Form W-4 includes the option to clarify the exact amount of tax you want withdrawn from each paycheck. It takes a little more work than writing down the number of allowances you’re claiming and hoping for the best, but the IRS has put together a Withholding Calculator that’ll help you get as close to that perfect number as possible.

Of course, if you anticipate significant changes to your income—or significant life changes such as buying a home, getting married, or increasing the number of dependents in your household—it might be harder to figure out your precise tax burden in advance.

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Likewise, freelancers and people who pay estimated taxes might have to do a little extra work to try to come up with the perfect estimate. (This is where meeting with a CPA in the final quarter of the year can be helpful; they can work with you to calculate that last estimated tax payment, taking business expenses and other deductions into account, so you don’t end up inadvertently underpaying or overpaying.)

But if you want to end the 2019 tax year having paid the government exactly what you owe and no more, it can be done. Six percent of us manage to pull it off, after all.

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If you’re one of that six percent, what advice do you have for other taxpayers?

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