While it is common for people to be surprised with their tax return results, ideally, you should not be surprised with your tax return results. There are several things you can do to help minimize surprises and ensure that you have a good understanding of your tax liability:
- Keep Track of Your Income and Expenses: Throughout the year, keep track of your income and expenses, including any deductions or credits that you may be eligible for. This will help you estimate your tax liability and ensure that you are taking advantage of all available tax breaks.
2. Review Your Withholdings: Review your W–4 form and make sure that you are withholding the appropriate amount of taxes from your paycheck. If you have had any significant changes in your income or family status, it may be wise to adjust your withholding allowances accordingly.
3. Know where you land in the tax brackets. How much income do you make? Use that number and subtract the standard deduction for your filing status to get an estimate of your taxable income. Then google tax brackets for that year. Observe where you land and see if it makes sense.
4. Do you have other income, such as investment income, retirement account distributions, self–employment income, rental income? Do you know how that income is taxed?
5. Stay Informed of Tax Law Changes: Keep up to date with any changes to tax laws or regulations that may impact your tax liability. This will help you make informed decisions when it comes to tax planning.
6. Work with a Tax Professional: If you have a complex tax situation, it may be beneficial to work with a tax professional who can help you understand your tax liability and ensure that you are taking advantage of all available tax breaks.
By taking these steps, you can help minimize surprises and have a better understanding of your tax liability when it comes time to file your tax return.
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Financial Journey LLC is a registered investment advisor offering advisory services in the states of Alabama, Florida, Virginia and in other jurisdictions where exempted. Information provided is for educational purposes only and not, in any way, to be considered investment or tax advice.
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