Tax Strategies for Withholding

March 1, 2022

Tax time is just around the corner, which has many of our clients talking to us about smart moves they can make to improve their tax filing for next year. One of the primary topics we typically cover is withholding, which often comes as a surprise. While your financial strategy shouldn’t focus solely on tax advantages, ensuring you’re not withholding too little or too much guarantees you can make the most of your income throughout the year. 

Receiving a substantial tax return should cue you to take a second look at your withholding strategy. If you are withholding too much from your taxes, you can’t use that money to pay bills, enjoy vacations, or invest for a much greater return. However, if you typically owe more than you receive, it could be time to revisit your tax withholding to ensure April is a stress-free time of year. 

When To Update Your Withholding

Life changes and previous tax years can help you adjust your rate for a more favorable end-of-year tax return. If any of these situations apply to you now or will in the upcoming year, then you should talk to your tax advisor about adjusting your withholding rate: 

  • If you get married or divorced (or are planning to in the upcoming year)
  • If you have or adopt a child
  • If you purchase a home 
  • If you change jobs, stop working a second job, or file for bankruptcy
  • If you are planning to retire in the upcoming year
  • If the tax laws change 

You should also plan for taxable income not subject to withholding, such as self-employed income, interest, dividends, capital gains, and IRA distributions. These can make tax time much more stressful if you owe, so be sure to plan in advance for these taxes to ensure you don’t owe a lump sum at the end of the year. 

So, what should you do with that extra cash that isn’t sitting in your IRS account anymore? There are several tax-efficient investment strategies you can take advantage of to make the most of your added income: 

Tax Efficient Strategies for Investing

The money that’s now available to invest can go into a variety of places, either for retirement savings or high-return investment strategies: 

  • Tax-deferred accounts such as traditional IRAs and 401(k) plans provide immediate tax benefits, as the money isn’t taxed until you withdraw it. 
  • Tax-exempt accounts such as Roth IRAs and Roth 401(k)s come from after-tax contributions, but grow tax-exempt, so you don’t have to pay tax on them when you retire. 

Adjusting your withholding rate can be done anytime, so talk to your OneAscent advisor on how to adjust your rate for a better return in the upcoming year. 



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