Now that we’re into June, the sixth month of the year; we’re officially at the half-way point of the tax year. This is really the point of no return for tax corrections and tax planning that will likely determine if you will have a tax problem that will require you to meet with a tax attorney next April.
One problem, among many, with our tax system is that the tax deadlines always seem to sneak up on you. Although it’s a generalization, in my experience, most people facing a tax problem prepare and file their taxes in April each year, just before the tax filing deadline. This causes a problem because they don’t realize that they had a tax problem for the previous tax year, until almost half way through the current tax year. This typically leads to a tax problem for the current tax year as well.
The easiest way to determine if you’re going to have a tax problem for tax year 2014 is to determine, and in some cases acknowledge, that you had a tax problem for tax year 2013. This is of course where the government starts its analysis. The government assumes you will owe a tax debt for the current tax year if you owed a tax debt for the prior tax year. However, this may be the first year that you have a tax problem and you don’t yet know you are going to have a problem.
Here’s a quick checklist of typical changes that may impact the amount of taxes you may or may not owe:
- Marriage or divorce;
- New child/dependent or child/dependent moving out;
- New job;
- New business or closed business;
- Increased income and/or decreased expenses;
- Purchase or sale of property, investments, or business;
- Satisfaction of loans or cancellation of debt;
- Withdrawal or use of retirement funds.
This list is not exhaustive, but are the typical culprits that may cause a tax problem. If you have had one of the changes shown above, or some other change with potential tax consequences you will want to do some research or see a tax advisor about what the bottom line tax amount will be from the change. This is sometimes easier said than done, but not impossible, and will make your tax planning easier with a firm number.
Because we’re in June, there still is a little bit of time to make adjustments to ensure you don’t have a tax debt for the current tax year. So what adjustments can be made? A good place to start is examining what tax credits and deductions may be available. This may be something you have done when preparing your taxes following a tax year. However, if you are cognizant of your need to take advantage of tax credits and deductions, you can plan your qualifying purchases and expenses to fit within the tax regulations during the same tax year that you may not have taken advantage of in the past.
If you still anticipate owing a tax debt after proper tax planning has maximized your deductions and credits, you may have to bite the bullet and simply pay more in taxes. Since we’re in June, make it easier on yourself by making estimated tax payments or increasing your tax withholdings now. The longer you wait to make these adjustments, the more you will need to pay on a monthly basis to catch up. Additionally, there are monetary penalties that may be assessed once you do file your tax returns if your tax payments were deficient.
This article is not intended as legal advice, and cannot be relied upon for any purpose without the services of a qualified professional.