Nearly everyone dreads tax time. Although no one wants to pay more taxes than they have to, the fact is, you can only reduce your tax bill by so much. Your obligation is your obligation, so what can you do when it’s time to pay Uncle Sam his due?
Unfortunately, many people are taken off guard by the amount they owe in taxes each year. When tax time rolls around, follow the tips below to avoid being surprised by your tax bill.
1. Open a Separate Account
Ideally, you’ll want to open a separate account in a different bank than the one you normally use. This way, you won’t see the funds sitting there and be tempted to spend them.
Use an income tax calculator to get an estimate of the taxes you’ll owe for the year, and then deposit that percentage into this separate account every time you earn income. When tax time rolls around, you won’t have to scramble to pay your tax bill because the funds will already be there waiting.
2. Meet with Your Accountant Quarterly
Time changes things, so it’s a good idea to meet with your accountant on a quarterly basis to discuss your financial trajectory and any tax law changes that may impact your situation.
This is a good time to make sure the percentage you’re setting aside for taxes is accurate. Your accountant should have an overall picture of your financial health and be able to offer advice and recommendations so there aren’t any surprises when it’s time to pay the bill.
3. Stay Apprised of the Tax Laws
While your accountant is the best source for tax law information, you can’t expect that they’ll always be on top of the tax laws that affect you. It’s your job to monitor the tax laws and identify any changes that pertain to you. This can be a great way to reduce your tax liability.
4. Life Changes Impact Your Tax Liability
Certain life events impact your tax liability. Marriage, divorce, death, having a baby: these all change the amount you may owe the government in taxes. Anytime a life event of this nature takes place, be sure to re-evaluate the percentage you’re saving in that separate account. Again, your accountant will be able to help you estimate how these changes will affect your tax bill at the end of the year.
5. Take Advantage of Tax Deductions
Everyone has to pay taxes, but that doesn’t mean you should pay more than you’re legally obligated to pay. The government puts deductions in place to help lower your tax liability, so consult your accountant to be sure you’re taking advantage of all the deductions to which you’re entitled.
6. Make Sure Your W-4 is Accurate
When you started your job, you most likely had to fill out a Form W-4. This form tells your employer how much tax to withhold from your earnings. You must make sure you fill this form out accurately to avoid tax liability mistakes.
For example, special tax laws exist for people who work multiple jobs or those who claim tax credits on their returns. If your W-4 is incorrect, you may be missing out on these special rules. So, it’s a good idea to ensure the details on your W-4 are accurate.
Nearly everyone dreads tax time, especially those who must pay money to the government at the end of the year. Although many people are taken aback by the amount they owe each year, following the tips above can help you avoid surprises when you get your tax bill.