Full disclosure: Believe it or not, I understand that tax planning is not at the top of everyone’s priority list, especially during the summer. With that said, it could be extremely beneficial to spend a little time analyzing your financial situation on a regular basis throughout the year; nothing crazy, 15 minutes each month is all it takes.
Why? To eliminate surprises when tax time rolls around and be in better overall control of your finances. Too often I see people acquire supplemental income, only to spend it all by tax time and not have the money to pay the taxes due.
At the end of each month, take a few minutes to look back on that particular month and jot down any out of the ordinary, uncommon activity that may have affected your financial situation. Purchasing or selling a home, selling stocks, starting a business, getting married and hitting the lotto (don’t act like you haven’t already spent your hypothetical lottery winnings) are a few examples.
If there are any instances where a particular event could result in a higher-than-normal tax bill, contact your CPA or tax advisor to run a projection of your current year’s tax liability. If necessary, additional tax payments (called “estimated tax payments”) can be set up and paid throughout the course of the year to cover any projected tax liability in excess of your projected withholdings. Estimated tax payments for the current year are due in four installments: April 15, June 15, and September 15 of the current year, and January 15 of the following year.*
Getting (and staying) ahead of Uncle Sam is 99% planning, preparation, and good communication with your CPA or tax advisor. Do yourself a favor and keep tabs on your financial activity, that way the next time someone says “the floor is tax planning”, you can be like:
*If the 15th lands on a weekend or holiday, the payments are due the next business day
Nick Aiola is a CPA located in New York, NY. Nick provides tax and accounting services to a wide range of clients, including individuals, businesses, and fiduciary entities.
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