Has this year been especially good for you financially? Was your business more profitable this year? Did your investments pay out big dividends or capital gains? Or did you receive an unexpected windfall? If you answered yes to any of these, now is a great time for us to compare an estimate of the Federal and state taxes you’ll owe this year to the taxes you’ve paid so far. If it looks like you’ll owe additional taxes in April, you have three options:
- Do nothing now, but be ready to write a check later. If your tax payments are less than what you owe, you may also owe penalties and interest in addition to more tax.
- Make an extra tax payment now. This can be done either by increasing the amount of your quarterly estimated tax payment or by sending in an extra check. However, you may still owe an underpayment penalty. Underpayment penalties are calculated by comparing your tax payments to the tax you owe, quarter by quarter. If you’re behind for the first few quarters, you may be assessed penalties and interest on the difference until your payments catch up.
- If you receive a salary, you can increase your withholding at year-end. Any withholding on wages is considered to be paid in evenly through the year, even if it’s all paid at the end of the year. This is by far the best option for avoiding penalties and interest.
This applies to both Federal and state taxes, so we’ll take a look at both. Please contact our office as soon as possible so we can run a projection for you.