Tax Day will be here before we know it and we’re all hoping to get a nice refund check back from the IRS; but what if we end up owing money instead? With proper planning, you can turn tax season into a time of year you anticipate with excitement rather than dread. Here are a few tips to help you avoid owing the IRS*:
Update Your W-4 Form
Submitting an updated W-4 form to your employer ensures the proper amount is withheld from your paycheck. If you get married or divorced, or if you have a child, these changes may affect your tax liability. Underpaying your taxes throughout the year can lead to an unpleasant surprise when you prepare your returns. It is always better to overpay than to underpay because any amount you pay in excess of what you owe is refunded to you when you file your taxes.
File on Time
Submitting your tax returns on time can help you avoid late penalties. For each month your tax return is late, the penalty increases by 5 percent, up to a maximum 25 percent. The current minimum penalty for filing a late return is $135. If you can’t get your taxes completed on time, contact the IRS to request an extension. You also want to keep from filing your taxes too early. Wait until you have all your W-2 or 1099 forms.
If you are self-employed or claim certain deductions, it is important to keep records and receipts. Although you are not required to submit this documentation along with your tax return, you will need it if you are audited. Without documents to support your income or deductions, you could find yourself unable to claim the income or deductions.
Claim All Deductions and Credits
Deductions and credits reduce your taxable income. There are a variety of deductions you may not even realize you are entitled to declare. If you have recently upgraded your home to make it more energy-efficient, you may be able to deduct a portion of the cost and installation fees. Students can also receive credit for tuition and education expenses by claiming them when filing their taxes. If you lease a car that you use for work, you can deduct a portion of the lease payment. Taking advantage of all possible deductions and credits can significantly lower your tax bill.
Adjust Your Tax Withholding
Once you know the total amount you will owe in federal taxes, the next step is figuring out how much you need to have withheld per pay period to reach that target but not exceed it by Dec. 31. Then fill out a new W-4 form accordingly. You can either ask your HR department for a new form or you can print one from the IRS
You can also save a little money on your filing fee when you file online through TurboTax. Point Breeze members can save up to $15 on federal products by clicking here
*Consult with your financial advisor about potential tax savings.