Avoid Owing Taxes to the IRS
How to Avoid Owing Taxes to the IRS.
Did you owe money to the state or federal government last tax year? If you did I’m sure you’ll never want it to happen again. However, if you haven’t figured out the reason you had to pay Uncle Sam last year, you could make the same mistake again. Here are five tips to help you avoid owing taxes again this year.
Have the correct amount of taxes withdrawn from your paycheck.
Many people owe at the end of the year because they don’t have enough withheld from their paycheck during the year. Therefore it’s a good practice to look at your pay stub and see how much you are having withheld. You can make adjustments to this amount at any time during the year by filing a new W-2 with your employer. Contact a tax professional if you have any questions about how much you should be withholding.
Beware of taxes on extra income.
If you sold stocks or other high ticket items that significantly bump up your income for the year, you might owe come tax time. Therefore, if you can, consider paying the tax on the income when it is received.
Beware of self employment tax.
Owing your own business means paying your own taxes. However making payments to Uncle Sam is difficult when you also have to worry about paying employees and keeping your business afloat. Therefore, if you are self-employed you should probably budget in funds for a professional accountant.
Don’t miss quarterly income payments.
If you are a 1099 employee you are responsible for paying your own income taxes. In order to prevent owing taxes, interest and penalties at the end of the year it’s a good practice to sit down each quarter and figure out your income. Your tax bill will be about 25%-30% of your total income.
Look out for changes in number of dependents.
Many people fail to make adjustments to their W-2 when children move out or they payoff a home. If you’ve had any changes to the tax deductions you’ve used in the past, it’s probably a good idea to review your W-2.
If you owed last year and are looking to avoid owing taxes this year, contact the financial professionals at USA Tax Prep Plus today!