Well, another April 15th has come and gone and tax season is over. To us in the tax world, this might as well be a holiday; an audible sigh of relief comes with this date every year. To the rest of the world, and to our clients, it signals that you have survived another year and you don’t have to worry about your taxes until another revolution around the sun is completed.
So this begs the question – what happens now? Do I need to do anything before this time rolls around again next year?
The short answer is yes – and that’s the same answer we tell all our clients. There are many items that can be planned for, and especially if you owed some tax this year, can be proactively adjusted or prepaid so that next year isn’t as painful.
We’re going to run through a brief list that has an effect on some of our clients as far as off-season tax planning goes:
Check your Withholdings Outside of Tax Season
You may have heard this phrase thrown around quite a bit over the past year or so. The IRS might as well have a recording that just says “check your withholdings” over and over again. So what do we mean?!
If you generally owe the federal government come tax time, it’s likely your withholdings are incorrect. If you’re a W-2 employee, these are derived from paperwork you filled out when you first were hired by your company – the Form W-4. This gets inputted in your company’s payroll system, and they “withhold” a certain amount from your paycheck each pay period based on the number of “withholdings” you listed on your Form W-4. See the connection?
Problem is, the Tax Cuts & Jobs Act (TCJA) that was passed near the end of 2017 changed withholdings, and the Form W-4 is due for a major overhaul come 2019.
Okay, I get it…you know your stuff. What can I do to make sure I don’t owe again next year?
Simple – if you owed tax this past year and you don’t know why, chat with your tax professional or let Boundless look at your return. Tax professionals can tell you why you owed tax.
If you owed tax due to incorrect withholdings, ask your employer’s payroll department what your Form W-4 on file says for your allowances. These are just simple numbers from starting at zero. If you listed zero back when you were hired, you are having the most tax possible withheld from your paycheck, and should likely receive a refund come tax time. If you have anything above zero, you are incrementally having less tax withheld from each paycheck.
General rule of thumb: the more allowances you claim, the less federal income tax your employer will withhold from your paycheck (the bigger your take-home pay). The fewer allowances you claim, the more federal income tax your employer will withhold from your paycheck (the smaller your take-home pay).
Our suggestion – have your tax professional (or Boundless) take a look at your return after you ask your employer’s payroll department what number of allowances you claim. If they need to be changed, your tax pro can tell you what they need to be changed to.
Make Estimated Payments
If you are self-employed, a freelancer, or have some “side gigs”, chances are your tax professional has told you to make estimated payments. Make sure you make each and every one by its due date! This year, estimated payments are generally due:
- April 15th, 2019
- July 15th, 2019
- October 15th, 2019
- January 15th, 2020 (for 2019 tax year)
If you are unsure if you should be making estimated payments, talk to Boundless and they can let you know if you’re in the clear.
Plan! Plan! Plan! Outside of Tax Season
The biggest service that we offer that most clients seem to think is unnecessary is tax planning. While we agree that if just earn some wages via a Form W-2, a whole lot of tax planning probably isn’t necessary. But, life’s big events do take quite a bit of planning, tax-wise. If you’re…
- Getting married (or divorced)
- Buying or selling your home
- Changing jobs (or going on unemployment or disability)
- Having a child
…this year, you may want to talk to your tax professional regarding tax planning. This is work that can be done outside of “tax season” that can help you minimize the impact that life’s big (and little) changes can have on your tax situation. For example, if you’re getting married, first of all – congratulations! Second, your tax professional should be able to show you an estimate of what your new married-filing-jointly tax return will look like, and whether it’s better to go that route, or still file separately.
Another Year Over…
…and a new one just begun! Luckily, that’s not the case yet, but we’ll all hearing that song again before you know it, so do some little check-ups now that will help you come next tax season.