POST TAX SEASON ACTION ITEMS
Whew, the 2022 tax season has officially come to an end. I know many individuals barely made it but what matters is that you have either submitted your 2021 tax return or extension. If neither has been done, you will need to begin the tax filing process as soon as possible to avoid further penalties and interest.
This month’s accountant blog will cover all things post tax season, because after every tax season, based on the results there most certainly needs to be some adjustments made. For so many, anything tax related are dealt with in “tax season.” Well, I hate to break it to you, if you want to creatively avoid taxes, it becomes a year-round matter rather than just seasonal. Especially if you are self employed or own a business.
IF YOU OWED TAXES, NOW WHAT?
If you are an employee, here are some adjustments to consider:
1. Adjust your Form W4 with your employer. This helps to ensure that the correct taxes are being withheld based on your tax circumstance. Make certain that you are completing the updated version of the Form W4 and not the version requesting you to input a number ranging from 0-9.
2. Utilize the IRS withholding calculator to obtain a more accurate withholding amount.
Click this link to begin and follow the prompts: https://www.irs.gov/individuals/tax-withholding-estimator
i. It will request your personal and employment activities, so have a copy of your last paystub(s) handy:
*This only applies to the federal portion of your tax obligations not for state or local.
3. Make estimated tax payments or opt into backup withholding. If for some reason your withholding from your paychecks is not enough, this would be your next step.
- What would trigger this action?
i. If you received dividends and interest throughout the year and no taxes were withheld
ii. Sold stocks
iii. Had profitable rental properties
iv. Had a profit from your business or self-employed activity
v. Had gambling winnings
If you are self employed or have a business, consider these action items:
1. Make estimated tax payments to avoid being penalized with penalties and interest for underpayments. You can make payments at https://www.irs.gov/payments
- These are the current due dates for each quarter:
i. 1st payment: April 18, 2022 (already passed, but try making it up in other quarters)
ii. 2nd payment: June 15, 2022
iii. 3rd payment: Sept. 15, 2022
iv. 4th payment: Jan. 17, 2023*
* You don’t have to make the payment due January 17, 2023, if you file your 2022 tax return by January 31, 2023, and pay the entire balance due with your return.
2. Ensure that your business’s financial records are kept in pristine condition throughout the year to avoid missing out on tax deductions
- Having your business activities organized throughout the tax year will save you time and money when it’s time to file your business tax returns
3. Engage in immediate tax planning with your tax advisor (see additional information below).
RECEIVED A REFUND?
Receiving a tax refund can mean either of the following:
1. There were too many taxes withheld from your wages
2. You were eligible for some sort of tax credits or deductions
3. Your business or rental property had a net operating loss
4. Had a capital loss from selling an asset (i.e., stocks or property)
Almost everyone wants a refund (I know I do). In fact, this is the reason why so many individuals file their tax returns at the beginning of tax season, with much high anticipation of receiving a refund.
Under these circumstances, you have two options:
1. Make some adjustments to your tax withholding to increase your take home pay
2. Or, simply do nothing and your refund will be awaiting you next year.
Every inch of tax planning is worth it regardless of your tax circumstance. Tax planning should be done at least once per quarter. Especially, if you are self-employed, have a business, or is an investor.
It can help you to save money/reduce your tax liability and proactively plan for the future, while helping you to refrain from evading taxes. I have seen taxpayers gone from owing $50,000 in the past to owing just under $15,000. This was a result of proactive planning rather than trying to reactively evade taxes.
For taxpayers already receiving a refund, this may not be much of a need. On the other hand, if YOU OWED, and have owed consecutively over the years, this will be a tool that you will want to exercise as soon as possible with your tax advisor. (I will be providing much needed tips and pointers relating to tax planning in a future blog, so stay tune.)
IF YOU SUBMITTED A TAX EXTENSION HERE’S A FEW THINGS TO CONSIDER:
First, it is important to note that a tax extension allows you an additional 6 months to file your personal or business tax return. However, it does not extend your tax payment deadline. Therefore, if you file your tax return after the extension and owe taxes, interest and penalties would have begun accruing after the date the original tax return was due.
Extensions for individuals and C-Corporations will be due on October 15 th , while businesses (only S-Corporations & Partnerships) will be September 15th. Though we have a few months ahead of us, start gathering and organizing all your tax documents to avoid missing the extended deadline or forgetting to include an item on your tax return because you ran out of time. Either of
these options can have a costly financial impact.
In conclusion, regardless of your tax outcome this season, I have listed a few homework items above. Ensure to take advantage of them but connect with your accountant to determine which options works best for your circumstances, because one size simply does not fit all.
Article Written by Guest Blogger
Rose Brown MS, AFSP (The Accountant Therapist)
CEO of Brown’s Fulfillment Consulting & Accounting Firm