You might feel relief since the calendar has moved past April 15th and tax season, but don’t get too comfortable yet. Having just wrapped up another busy season, it’s now time to shift gears to start planning for 2015. No one enjoys paying income tax, but unexpectedly owing tax on April 15th is worse!
Having a large tax liability is normally an indication you’ve had a successful year, but if you’d prefer avoid a surprise in 2015 here are a couple of simple things you can do.
- Talk to your HR/Payroll department now to check your withholding elections (W4)
- Make sure you take advantage of all the tax deferral benefits your employer offers
- Retirement contribution- 401K, IRA etc.
- 125 Cafeteria plan- HSA, Disability
- Flexible spending account- Childcare costs, Medical Equipment etc.
- If you’re self employed make sure to make your estimated payments
- Don’t forget to include self-employment tax you’ll owe
- We recommend to our clients that we base the estimates on current year activity by performing tax projects through the year
- Don’t forget about tax liability from rents, royalties, dividends, capital gains and interest
- Consider saving a certain percentage of this income in a bank account with the expectation these dollars will be used to pay income tax next April
- Don’t forget about net investment income tax or
- Increase in capital gain rates for a higher income earner
- Determine if your adjusted gross income may limit personal exemptions and itemized deductions, exposing more of your income to tax
We advocate taking a proactive approach when it comes to tax consulting. Your CPA should welcome conversation during the year and if you self prepare, be sure to revisit your tax software before next season. Spending a little time now will place you in a better position to identify possible opportunities to reduce you tax liability, and will help you to avoid a big surprise next April.