Every year taxpayers are hit with tax surprises that could be avoided if they just knew the rules. Here are three big ones that are easy to avoid with some simple planning:
1. Not withholding enough. This tax surprise can happen when you’re filing your income tax return. Don’t be too hard on yourself if you’ve experienced this. Social Security withholdings can change yearly, and new tax laws can make it hard to withhold the proper amount from each paycheck.The plan: Check your withholdings after filing each year’s tax returns. Make adjustments as necessary by filing a new W-4 with your employer.
2. Unintentionally withdrawing from retirement plans. Amounts taken out of pretax retirement plans like 401(k)s and IRAs can create taxable income. The most common inadvertent withdrawal occurs when you incorrectly roll over funds from one retirement plan to another.The plan: Do not withdraw funds from your retirement accounts if at all possible, until you hit the minimum retirement age. When you do withdraw funds, ensure you have the proper withholdings taken out at time of withdrawal.
3. Not keeping correct documentation. Mileage, medical expenses, daycare — you name it, you document it. If you don’t, the IRS could disallow your valid deductions.The plan: Set up good recordkeeping habits at the beginning of each year. Categorize by income and expense type. Also, keep mileage records and properly document your charitable contributions.
We can help make sure you’re on the right track for the 2017 tax season. Call us if you have any questions.