Filing out your W-2
Have you ever wondered if you are filling out your W-2 correctly? Have you thought, well the payroll department will guide me in the correct direction? The payroll department cannot tell you how to fill your W-2! We here at Flat Top Bookkeeping understand that the W-2 form can a little tricky. It is not always cut and dry as it may seem that it should be. Go through and answer all the questions and then at the end total up your numbers. One could easily end up with more exemptions than they have or what they should be claiming.
Simple but funny story as an example. A young 21-year-old young man filled out his W-2. Taking his time to read all questions and totaling up his numbers at the end. When he was done he had turned in his W-2 to the payroll department with a total of 3 exemptions. Did we mention this young man was single? Well come time to file for taxes, this young man had to owe taxes. Money, he did not plan on owing the IRS. After looking at his summary that year and seeing his exemptions, we were able to advise him to change his exemptions.
Know whether you have an FSA or HSA. Some may have the opportunity to participate in both, and yes participating in both is beneficial to you as a taxpayer.
If your employer only offers an FSA, find out how much the employer is contributing to the account. The max contribution combined for FSA is $2,700 for single taxpayers or $5,000 or married taxpayers in 2019. Here at Flat Top Bookkeeping, we will not advise one to put in the maximum to an FSA unless you know it will be used by the end of the year. FSA accounts are accounts that need to be used in full at the end of the calendar year. If you know the amount contributed to your FSA will be used by end of the calendar year, we here at Flat Top Bookkeeping advise you to contribute the maximum. The funds you add to this account come out of your check before taxes becoming non-taxable income. This will lower your taxable income at the end of the year.
Let us discuss the HSA. Here at Flat Top Bookkeeping, we will advise contributing the maximum amount after what your employer contributes. Single taxpayers can contribute a combined amount of $3,500 and $7,000 for families. HSA accounts are essentially a savings account, as you do not have to use these funds by a specific time. Contributing to this account will again, lower your taxable income at the end of the year. As these funds are put into the HSA tax-free.
Here at Flat Top Bookkeeping cannot say this enough, this is one of the best and easiest ways to reduce your taxable income. Our team recommends to at least contribute up to what your employer will match. This works for taking advantage of the employer contribution and lowering your income. If you can contribute more, GREAT! Do remember, the more you contribute the more you save on your taxable income and set yourself up for retirement. Once again, these contributions are non-taxable.
Small story or how this works, looking at a client’s W-2 summary for the year 2018. It is noticed that their taxable wages are less than what they are told they make for the year. Social security wages are higher than W-2 wages. Just by doing the max for HSA and matching 401(k) contributions of the employer. In fact, the W-2 wages are approximately $7,500 less than gross income for the year. Will all this said, the simple tax advantages will be beneficial to you. Let us here at Flat Top Bookkeeping help you for next year!
Be sure to check with your payroll department how many exemptions you are claiming if you do not know. Check with human resource department on your FSA, HSA and 401(k). After gathering this information, please come to Flat Top Bookkeeping for tax tips!
Let us help you make 2019 a tax year you take over your tax situation!