It can be a sinking feeling to look at your tax paperwork after you file and realize that you still owe Uncle Sam a significant amount of money. If you know you’re not going to be getting a tax refund this coming year, you can at least make an effort to get your tax liability as close to zero as possible so you aren’t stuck with an unexpected tax bill early next year.
So, what exactly can you do to get your tax liability down to nothing (or nearly nothing)? Here are a few tips to consider from our tax service in Des Moines, IA:
- Collect all the documentation you have: Arming yourself with information is the first step you should take when analyzing your tax situation and determining what you can do to get down close to a zero liability. You’ll need documents like past tax returns, some past pay stubs, information about your retirement plan or health savings plan, information about mortgage payments or points and anything else that may affect your taxes.
- Calculate: You can go online and find a variety of sources that offer tax withholding calculators. In fact, the Internal Revenue Service (IRS) website offers one for free, but there are other personal finance sites that will also provide this service. You’ll need this calculator to get an estimate of how much your tax liability will be in the coming year.
- Data: Put all of the relevant data into the tax liability calculator. You’ll need to put in information such as income estimates (employee and non-employee), retirement plan and health savings plan contributions, compensation in the form of unemployment or other government benefits, tax withholding amounts and anything else the calculator might ask for, such as medical expenses or other itemized deductions. Note that the vast majority of tax filers these days will simply take the standard deduction, especially since it was doubled under the Tax Cuts and Jobs Act of 2017.
- Analyze the result: After you’ve punched in all of the relevant information, you’ll get a resulting income tax figure. You can divide that figure by the number of pay dates you have to determine the paycheck withholding you’d need to have at each pay date throughout the year to get your tax liability as close to zero as possible. This may mean increasing your income tax withholding each period by a bit. But if your goal is to get to the end of the year and not have to pay any additional income tax, then it’s best to spread it throughout the year rather than getting hit with a single lump sum payment during tax season.
Need more tips about how you can reduce your tax liability? A trusted tax preparation specialist in Des Moines, IA can provide you with more information about the various deductions and tax credits for which you qualify, as well as the variety of different tax planning strategies you can implement to give yourself the best results on your tax return at the end of the year.
Contact Accounting & Tax Professionals, PLC today with any questions you have and we will be happy to give you any additional information you need. We look forward to working with you and helping you reduce your tax liability over the course of the coming year.