It’s that time of year again … when you gather up all of your tax documents, send them to your CPA or tax preparer and wait for the results. Will you pay or will Uncle Sam be sending you a check? For those that find themselves owing money on April 17, the first thought many times is, “Help – I need a new tax preparer!” Before you go firing anyone, check a few important lines on your tax return:
• Line 43: Did your taxable income increase over last year?
• Line 44: What is the total amount of tax owed for the year?
• Line 72: How much was withheld from your various income sources throughout the year?
Remember, it is possible to pay less income tax than you did last year and yet OWE money to the IRS at tax filing time. How can that be? Perhaps you simply had less withheld over the year.
Here’s an example:
Joe and Sandy had to pay $2,000 more at tax time then they did last year. However, the “extra” tax wasn’t really extra at all. The total tax due for the year was about the same as last year. The difference? They had less tax withheld from their wages, pensions, or IRA distributions this year. So, they owed the same amount for the year, but they paid (read: withheld) less throughout the year. So, don’t go firing your tax preparer just yet! You may need to adjust your withholding via Form W-4 to avoid any surprises next April.
You should discuss any tax or legal matters with the appropriate professional.