Taxes are a bitch, all of us know this. No one like paying them, and few of us like doing them. I don’t know about you, but at times the language in my 1040A serves to make me feel like a moron. Then there are state taxes and county taxes. Considering I am young, have no kids, and could really give a shit where I live, I am certainly not a fan of paying these. However, we must.
With a little more than two months before the tax-filing deadline, a lot of people are still in procrastination mode. This can be disastrous, especially if you are about to get hit by a big tax bill in April. Having the upcoming pay periods available to you to save could be the difference between going into debt paying your taxes or enjoying a late spring break in April with all of your friends.
Right here I am going to give you a quick ten minute tutorial on how to estimate your taxes with a 90% accuracy and only using 7 numbers in 8 easy steps. No, it won’t have every deduction there is calculated into the math, but it doesn’t need to. You can find a free tax calculator online for more precise figures. But, we are just going to ballpark, so you don’t feel hit over the head when you find out your tax bill is $2500 this year (as I did last week).
The only piece of paper you will need is your W2, the rest you can find on your computer easily and then a scratch pad to do some quick math. Lets get started
Step 1: Write down the total from Boxes 2, 17 and 19 on your W2 and add them together. Put that number aside and we will come back to it later. For simplicity, label it A.
Step 2: Look at the number in Box 1 of your W2. Now subtract $9000 from it (this is an estimate of the standard deduction. It’s a bit high, but it’s likely you will have other deductions, and we are also just ballparking here)
Step 3: If the number from step 2 is less than $25,000, multiply by .15 (or 15%). If its over that number, multiply by .25 (or 25%). (If you are in anything higher than the 25% bracket, odds are you have an accountant doing this for you, so I am going to exclude you all from this… sorry guys) Keep this number on the side and label it B.
Step 5: Add the two numbers from step 4 together.
Step 6: Multiply the percentage from Step 5 against the number you pulled in Step 2 (this will be slightly off because that $9,000 deduction will be different for state taxes, but it’s close enough for government work) Keep this number on the side and label it C.
Step 7: Here is where the addition comes in. Add number B and number C (steps 3 and 6). Call this number D.
Step 8 (Final Step): Compare number D to number A. If number A is greater (taxes you have already paid), likely you will be getting a refund. If number D is greater (your tax liability), you are gonna have to owe some money, and I will guess its pretty close to that amount.
Disclaimer: This simple trick to figuring out a quick estimate of what you are likely to owe is not 100% accurate. If you have several deductions, a large amount of investments, own a home or have children, this is not going to work for you. However, if you are like me, single (or at least filing single), rent, make less than $90,000 a year and don’t have any children, I am willing to guess this number will be close to your tax outcome for the year. At worst, it’s overstated which means you can be pleasantly surprised when you do actually put your taxes together. Start saving now to lessen the hit (if there is one) come April.