8. Under-withholding. A client began working an additional job that provided enough income to meaningfully increase his household income. When he filed his taxes, the client owed for federal and state because not enough was withheld throughout the year.
We suggested that he claim all of the available allowances on the Form W-4 for the highest paying job and claim zero for his secondary job. By doing so, we prevented overpayment of taxes over the following year, putting more money in his pocket, but also avoided underpayment of taxes, ensuring that there was no unexpected tax bill or penalty due the following year. — AnnaMarie Mock, CFP, Highland Financial Advisors, Wayne, New Jersey