The following is a guest post from Grace, about tax withholding. You know, the little form that you fill out when you start a job and then forget about? That little form can mean the difference in a fat refund or owing money. Grace Kvantas is passionate about helping young professionals make educated financial decisions. She is a financial professional at a financial planning firm, Financial Symmetry, Inc., and is currently going through the CFP(r) certification coursework. Besides being featured in Investment News, she loves being a mom and spending time outdoors. Follow her on Twitter at @GraceKvantas or her team at @TeamFSInc. While you’re at it, be sure you’re following YMF on Twitter too. 

Now that tax season has passed, it’s the perfect time to reevaluate the tax withholding allowances you have selected through your employer on your Form W-4. These withholdings determine the amount of tax withdrawn from each of your paychecks. While it feels great to receive a large tax refund, and alternatively it feels devastating to owe a large tax bill, it is most efficient to get as close to breaking even on your income taxes as possible. This is a difficult task, so below are a few pointers on how to make it happen.

• Plan ahead!
• Grab your latest paystub and tax return, and use them to go through this IRS tax withholding calculator or this TurboTax withholding calculator. There are also two tables at the bottom of Form W-4 that can help you select which numbers go on which lines of the form.
• Analyze your withholdings again at the beginning of each year.
• Analyze and adjust your withholdings whenever you have a major life change – for example, if you get married, get divorced, have a child, start a new job or lose a job.
• If you don’t have time for a calculator and want to keep things quick and simple, select single or married with 1 withholding allowance on your Form W-4. This works out for most simple tax scenarios.

Keep in mind that if you owe more money to the IRS with your tax return than you had projected, it means that you likely made more money than expected. That’s not such a bad thing, is it?

If you want to lower your tax liability, a great way to do it is to increase your contributions to a tax-deferred employer-sponsored retirement plan, like a 401(k), 403(b), 401(a), or a Simple IRA. If your employer does not sponsor a retirement plan, you might be eligible to make tax-deductible contributions to a traditional IRA.*

*Evaluate whether contributions to a traditional IRA or a Roth IRA is better for your personal situation as the $5500 annual limit for 2015, as indexed, applies collectively across both types of account.

YMF Tip – For most of us, selecting just “1” allowance will probably be the best. As Grace mentioned, withholding too little or too much really isn’t the most efficient way to do your taxes!