Give Withholding and Payments a Check-up to Avoid a Tax Surprise

2013 will hold some unpleasant tax surprises for many taxpayers because of:

• Increased long-term capital gains rates.
• Increased ordinary tax rates.
• A new 3.8% tax on net investment income.
• The new additional 0.9% HI (Medicare) payroll and self-employment tax.
• Life-changing events such as marriage, birth of a child, or new job.
• One-time increase in income from sales of stock or real estate.

Other factors can also have an impact on the results of your tax return. These include life events such as marriage, birth, or adoption of a child; divorce or separation; the death of a spouse; a new job; a bonus; or a spouse going to work.

You may have sold a business, real estate, stocks, or other assets that will produce a one-time increase in income.

So, if you have a substantial increase in tax as the result of any of the above or other events, it may be wise to review your withholding and/or estimated tax payments to ensure you have set aside funds for the increase in taxes and have paid in enough in advance to avoid or minimize an underpayment penalty.

Generally if you have not paid evenly throughout the year withholding and estimated taxes, so that they will equal 90% of your tax liability for the year or 100% of the prior year’s liability (110% if your income is over $150,000), you may be subject to an underpayment penalty for the year. This office can project your 2013 tax liability to prepare you for your tax liability and so you can either adjust your withholding or make estimated tax payments to minimize penalties. If you are already set up to pay estimated tax, revising the remaining payment vouchers may be appropriate.

If a potential large tax liability is discovered early enough, your withholding for the rest of the year can be adjusted. Withholding is treated as deposited ratably over the course of the year even if paid towards the end of the year, which helps mitigate underpayment penalties where you are underpaid in the earlier quarters.

If you need assistance with tax planning, tax projections, or in modifying your withholding and estimated payments, contact the Experts at Henssler Financial: experts@henssler.com or 770-429-9166.

Disclosures

This article is meant to provide valuable background information on particular investments, NOT a recommendation to buy. The investments referenced within this article may currently be traded by Henssler Financial. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. The contents are intended for general information purposes only. Information provided should not be the sole basis in making any decisions and is not intended to replace the advice of a qualified professional, such as a tax consultant, insurance adviser or attorney. Although this material is designed to provide accurate and authoritative information with respect to the subject matter, it may not apply in all situations. Readers are urged to consult with their adviser concerning specific situations and questions. This is not to be construed as an offer to buy or sell any financial instruments. It is not our intention to state, indicate or imply in any manner that current or past results are indicative of future profitability or expectations. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing. Henssler is not licensed to offer or sell insurance products, and this overview is not to be construed as an offer to purchase any insurance products.