Tax filing season may still be months away, but that’s not to say you shouldn’t start prepping now. Below are just a few of the steps you can take to ensure you’re ready.
Make sure your withholdings are correct
The IRS recommends taxpayers use their online Tax Withholding Estimator to help determine whether the correct amount of taxes are being withheld from their paycheck.
If you’re not having enough withheld, you run the risk of owing when you file your 2021 returns. On the other hand, if you realize that too much is being withheld, you might want to make some adjustments.
Although some people don’t mind having too much taken out of their paycheck (because they enjoy getting a refund each year when they file), others are less inclined to provide Uncle Sam with an interest-free loan. If you have questions about how to modify your withholding so you don’t wind up owing, or you want to make sure you adjust your withholdings so you can maximize your take-home income (and minimize any potential refund amount), be sure to speak with a licensed tax professional.
Double check your estimated tax payments
Do you receive a significant amount of non-wage income, such as investment income, rental income, taxable Social Security benefits, annuity income, pension income, or investment income? If so, you’ll want to ensure you’re making quarterly estimated tax payments.
If you think you’ll owe $1,000 (or more) in federal income taxes in 2021, and/or you think the amount of money that’s being withheld from refundable credits (and current withholdings) will cover less than 90% of what you’ll owe when you file your taxes, you should be making quarterly tax payments. However, that’s not to say you can’t make payments monthly. If you think you’ll owe $1,200 when you file, you have the option of breaking that into 4 payments, 6 payments, or even 12 payments throughout the year. For more information about how estimated tax payments work, or to learn more about what (if anything) you should be paying, be sure to speak with a seasoned tax professional.
When it comes to prepping for next year’s taxes, planning is everything. For more information about the benefits of establishing a plan now, or to learn more about how you can ward-off unplanned tax bills when you file, we can help. Call our office today to speak with a licensed expert.