Tax Day Surprises
The last thing anyone wants on April 15th is a big surprise in the form of a balance due on their individual income tax return. To guard against this occurrence there are several steps that an individual can take to ensure that when they sit down with their CPA – the resulting outcome is in an expected range.
Whether you are a W-2 employee, an investor, or a small business owner, there are steps you can take during the year to help prevent a surprise the following April.
W-2 employees - changing jobs, getting a raise or bonus, or taking on a second job, can create tax problems. It is important that your withholding is sufficient to cover the additional tax that these items can create. Remember that the withholding tables are a “one size fits all” approach and frequently can leave a taxpayer with insufficient tax withheld, especially when both spouses work.
Investors - If you are an investor and own stocks, bonds, mutual funds, or own rental properties, there are events that can occur that will increase your tax from one year to the next. If your investment income increases because of increasing dividends, or from taking a large capital gain these positive events will also increase your tax. If you own rental properties and realize an increase in rental income, or a decrease in operating expenses, this will also increase your tax.
Small Business Owners – If your business has an increase in profits over the previous year – you can expect an increase in income tax. If you fall into this category – it is extremely important to consult with a CPA as there are actions that can be taken to mitigate the increase in tax. Contact a CPA prior to year end to undertake tax planning strategies and, at a minimum, to gain an understanding of the tax impact to yourself and your business.
Making more money from one year to the next is generally a positive that most of us strive to attain. Consulting with your CPA will give you the opportunity to perhaps mitigate the corresponding tax increase, and, if nothing else, will ensure that when you file your taxes the following April that you don’t experience a negative surprise in the form of an unexpected tax balance due. We are available in the Des Moines office to consult with you to help avoid these surprises.
