Have you ever gotten a tax bill at the end of the year and thought, “how could I possibly owe this much?” Or received a large refund and said “wow, I sure could have used this throughout the year…” If you have, you’re not alone! Utilizing a mid-year tax plan can be the key to unlocking the mystery that is your tax bill.
In order to do this effectively, it involves tracking and paying taxes on your different income sources throughout the year. With regular income streams, such as your paycheck, this can be easily done through paycheck withholdings. With irregular income it can be a little tougher, but not impossible.
There can be a multitude of factors that can lead to you scratching your head come April every year. One of the big ones is income received from investments. As transactions are made in taxable investment accounts throughout the year, capital gains can add up, leading to a large tax bill. Interest and dividends from investments can add to this as well.
Another factor that can play into this is self-employment income. Tax payments are not automatically withheld, leaving it up to you to save the money for taxes. This may be a given for someone who is fully self-employed, but for someone new to self-employment, or someone with a side-hustle that just became profitable, it can be a new concept. These are just some examples of things that can complicate the calculation of your tax bill.
One of the most useful tools when dealing with this problem are estimated tax payments. These are paid in 4 times a year to cover unpaid tax liabilities accrued throughout the year. However, coming up with the right formula of withholding and estimated tax payments can be confusing and flat out difficult.
This is where wealth management professionals like us here at JGUA can help tremendously. We can use tax planning software to streamline the process and determine if you are ahead of the game, right on track or maybe a little behind. Once the mid-year tax plan is completed, the path forward, as well as that upcoming tax bill, becomes much clearer.
