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Surprise! You Owe Tax

Some surprises are great: birthday parties, unexpected gifts, found money, and so on. A surprise no one likes is to owe an unexpected amount at tax time next year.

As we approach the end of the year, consider the following to avoid the nasty shock of an unexpected tax bill:

  • If you’re an employee and think you may not be paying enough tax each pay period, use the IRS’ Withholding Calculator to see how much you should withhold. If you find you’re not paying enough (or if you’ve overpaid), complete a new W-4 for your payroll department to make an adjustment through the end of the year. Remember: complete another W-4 in January if you don’t want the same withholding throughout the coming year.
  • Changes in circumstances affect your tax credits. If you purchased health insurance coverage through the Health Insurance Marketplace and received premium tax credit payments, changes in income, family size, or employment may affect those payments. Incorrect amounts of premium assistance must be adjusted on your tax return, so report changes early to avoid later surprises.
  • Life events also affect the amount of tax due. For example, if you experienced a change in marital status or welcomed a baby during the year, complete a new W-4 for your payroll department or adjust your estimated payment.
  • If you received income that’s not subject to withholding—such as self-employment income, rent, or interest—you may need to make estimated tax payments. Use Form 1040-ES to calculate and pay your tax quarterly.
  • Carefully complete Form W-4 so your employer withholds the right amount. Special worksheets apply if both you and your spouse work, or you work more than one job.

One good way to avoid unpleasant surprises is to meet with your CPA to discuss any changes that occurred during the year. If you need help with tax planning, the accountants at Patrick & Robinson CPAs are always available to help.

Contact us at Office@CPAsite.com or 904-396-5400.

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