Do you balance your checkbook once a year? No, of course not. And taxes should not be a once-a-year activity either. Your tax picture can change, sometimes dramatically, over the course of a year and adjustments may have to be made. Otherwise, you may be paying too little or too much through tax withholding or estimated tax payments. For example:
- Taxpayers who get married this year may need to increase or decrease withholding or estimated tax payments, depending on their personal situations.
- Taxpayers who divorce this year go from joint to single filing status. Again, this may mean a tax increase or a tax decrease, depending on the circumstances.
- Parents of a new child will be entitled to an additional dependency exemption for the year as long as the baby arrives by December 31. They may also qualify for a child tax credit.
Income prospects may also have changed since early in the year. For example, while a business owner might have expected a profit for the year looking from a January 1 perspective, by mid-year things may have become considerably less rosy. This can have important tax consequences that should be reviewed.
An individual’s attitude about his or her tax payments can also change during a year. For example, you may have deliberately decided at the beginning to the year to have too much withheld from your paycheck so you would get a big refund at tax return time. But by now, higher prices may be taking a toll on your pocketbook. You may want to increase your take-home pay now (by reducing withholding) and forget about that refund check next spring.
If there have been changes in your personal or financial situation since the beginning of the year, it may time for a mid-course correction as far as taxes are concerned. Please contact us if you would like to discuss what action may be needed.
Your Tax Return Preparer