Stay informed on the latest tax news and developments, including legislation and rule changes, for effective tax planning and compliance.
3 clever strategies for getting ready for taxes now
Financial experts advise early preparation for next year's taxes, especially if surprised by a tax bill this season. Despite the IRS processing nearly 76 million refunds, averaging $2,840 (8.5% lower than last year), you could face a bill for underpaying taxes. Key strategies include:
1.Reviewing your 2022 return: Understanding the cause of an unexpected tax bill is crucial. Be it a one-time high-income event or recurring revenue, adjustments can be made for future tax payments, suggests Eric Scruggs, founder of Hark Financial Planning.
2.Adjusting withholdings: If 2022's tax liability was more than expected, consider revising 2023 paycheck withholdings. Decreasing allowances or setting aside more per paycheck can balance this, says Kevin Brady, VP at Wealthspire Advisors.
3.Optimizing your portfolio: Brett Koeppel, founder of Eudaimonia Wealth, recommends reviewing your portfolio. Assets across brokerage, tax-deferred and tax-free accounts can be strategically placed to optimize tax payments. For example, income-generating assets might trigger a yearly tax bill in a brokerage account, which may need careful review.
Are you overpaying taxes to the IRS? The following actions are required of business owners
As the U.S. recovers from the pandemic and businesses experience revenue growth, some small businesses have been shocked by higher tax bills due to increased income and 2022 tax law changes. However, there are strategies to manage these unexpected bills:
1.File promptly, even if unable to fully pay, to avoid the IRS's "Failure to File" penalty.
2.Even with an extension to file, payment is still due.
3.Look for local disaster exceptions for filing extensions.
4.Investigate short-term or long-term payment plan options.
5.Avoid using payroll tax funds for personal taxes.
6.Weigh high-interest personal loans or credit against IRS penalties and interest.
7.Consider an amended return for additional deductions.
8.Seek CPA advice for future planning and potential tax deferrals.
9. Look into tax-deferred retirement plans and the benefits of the SECURE 2.0 legislation.
It's also important to have sufficient cash for the next tax cycle, to be prepared for any surprises.
Is it wiser to save more money for 2023 or to receive a tax refund? tax authorities comment
Post-Tax Day is an ideal time to assess your tax withholdings. According to a 2020 survey, 45% of American taxpayers are unsure when they last updated their pay withholdings. Adjustments can be made using a new W-4 form. Ed Slott, CPA, suggests aiming to break even, though variations in income can make this challenging. The IRS’s withholding estimator tool can help predict your tax obligations. However, financial habits may dictate whether you adjust to receive a refund or owe a bill. Overpaying taxes provides an “interest-free loan” to the government, says Professor Stan Veliotis, whereas underpayment can lead to penalties. Conversely, Lisa Violet, CPA, highlights that a sizable refund can be beneficial for many Americans, providing a lump sum that can be put towards financial goals. Balancing these considerations is key to optimal tax planning.
