It is tax time. For some, this is an exciting time because it means a big refund and new furniture or home upgrades. However, for some, it is a nerve-racking, nail-biting, fear-instilling season. Businesses and individuals often find that the amount of taxes they are paying simply isn't enough. At Chandler & Knowles, CPAs, we work with our clients to make sure tax filing is easy to navigate, so tax time isn't grueling.
Reasons You May Owe Taxes
First, don't assume that you aren't paying enough taxes. Although this is often the case, in many instances, it is caused by missed deductions, credits, and incorrect calculations. Here are some typical items that individuals may miss when filing taxes:
- Child tax credit
- College tuition credits for a child, yourself, or your spouse
- Student loan interest
- Travel expenses for military reservists or medical visits
- Mortgage insurance premiums (only if you itemize)
- Mortgage points (only if you itemize)
- Earned income credit
- Gambling losses
- IRA or other savings contributions that are not pre-tax dollars
Some common missed deductions or credits for small businesses are:
- Home Office Deduction
- Health or Medicare insurance premiums for the self-employed
- Business travel baggage fees, parking, or tolls
- Tax preparation, software for bookkeeping, payroll expenses
- Dues or subscriptions for business-related websites or magazines, website hosting, maintenance and domain fees, trade or civic association dues
- Bank fees including annual fees for credit cards, the interest charged for a credit card, overdraft charges, maintenance fees, and ATM convenience fees
Other Reasons You May Owe Taxes
Taxes are withheld from an employee's paycheck but this is directed by the W-4 that is filled out prior to employment. If you find that there isn't enough being taken out of your check, fill out a new W-4 and decrease the number of exemptions. Non-wage income such as unemployment, annuity, or pensions is taxable and paying the taxes when you get paid is the best policy to avoid a tax bill later. Always remember that extra income or changes in your status such as a divorce or a child that turns 16 will affect your tax situation. Assess how your tax bill is affected by doing a faux return or consulting with an accountant to help you determine the adjustments that need to be made. Small businesses should pay quarterly taxes to avoid paying with your tax return.
What Should I Do If I Owe Taxes?
The fear of owing the IRS is real. However, this government agency will generally allow you to set up a payment plan if you cannot pay the full amount. Also, they do charge interest equal to the federal short-term rate plus three percent. Additionally, the IRS invokes penalties based on the amount owed. Be aware; they do frown upon multiple years of owing taxes and usually want you to figure it out by next year's tax time. The IRS does offer special long-term payment plans for those with higher tax bills.
Can Tax Planning Help?
Tax planning is the best way to make sure you don't owe anything at the end of each year. Tax planning is a strategic plan to make sure you pay the least amount of taxes possible using legal and ethical rules. Chandler & Knowles features a staff of educated and experienced tax experts who can advise you on achieving your tax goals. Contact our team today to get started