As a small business owner, it’s essential to stay on top of your tax obligations throughout the year. One important aspect of tax planning is ensuring you have the correct amount of taxes withheld from your income.
At Lightening the Load, we believe in empowering small business owners with tax knowledge. This blog post will explore the topic of withholding adjustments and guide you through what to consider for the rest of 2025.
Who Should Consider Adjusting Withholding?
If you’re a small business owner who receives a salary from your business, such as a sole proprietor, partner, or S corporation owner, you should periodically review your withholding. This also applies to employees of small businesses.
Reasons to Adjust Your Withholding
There are several reasons why you might need to adjust your withholding:
- Changes in Income: If your income has significantly increased or decreased since you last set your withholding, you might need to adjust it to ensure you’re not underpaying or overpaying taxes.
- New Deductions or Credits: If you’ve become eligible for new tax deductions or credits, such as those related to dependents or education expenses, adjusting your withholding can help you account for these changes.
- Avoiding a Large Tax Bill: If you anticipate owing a significant amount of taxes when you file your return, increasing your withholding can help you avoid a large tax bill.
- Preventing Underpayment: Conversely, if you’re consistently receiving large tax refunds, you might consider decreasing your withholding to have more access to your money throughout the year.
How to Assess Your Withholding
- Review Pay Stubs: Examine your recent pay stubs to see how much is being withheld for taxes.
- Compare to Previous Returns: Compare your current withholding to your previous tax returns to see if there are any significant differences.
- IRS Withholding Calculator: Use the IRS Withholding Calculator to estimate your tax liability and determine if your withholding is appropriate.
Making Adjustments
If you determine that you need to adjust your withholding, you can do so by completing a new Form W-4, Employee’s Withholding Certificate, and submitting it to your employer. The W-4 form allows you to adjust the amount of taxes withheld from your paycheck.
Year-End Tax Planning
Withholding adjustments are just one aspect of year-round tax planning. As the year progresses, consider additional tax planning strategies, such as:
- Estimated Tax Payments: If you expect to owe taxes beyond your withholding, make estimated tax payments throughout the year to avoid penalties.
- Maximize Deductions: Keep thorough records of your business expenses and identify any potential deductions to reduce your taxable income.
Stay on Top of Your Withholding
By staying informed about your withholding and making necessary adjustments throughout the year, you can avoid surprises at tax time and ensure you’re paying the correct amount of taxes. At Lightening the Load, we’re here to support your small business with expert tax advice and guidance. Let us help you navigate the world of withholding and optimize your tax strategy.
Let us lighten your load.
