What Your Tax Return is Telling You
We are a little over a month removed from yet another tax filing season. Hopefully, you were able to get your respective return(s) filed timely or extended and without any hiccups or stressful encounters. Being a CPA, I often get questions from my friends back home after they have their returns filed such as, “What do I have to do to pay less in taxes?” or comments that sounds something like, “I actually got a really good refund this year!” When it comes to tax planning, optimization should be the end goal as opposed to paying less in taxes and receiving a larger than necessary refund. Here are a few things that your return may be telling you and a few considerations as you work your way through the 2024 tax year.
Tax Payments & Federal Withholding
I often tell clients that paying taxes is not always a terrible thing in and of itself. What is more important is that you do it as efficiently as possible. If you find out at year-end that you are substantially overpaid on your tax return, it may be time to consult with your CPA about adjusting your quarterly payments or filling out a new Form W-4 with your current employer. You have given the IRS an interest free loan with funds you could have been compounding in tax-advantaged investment vehicles! On the flip side, the same can be said for having a larger than expected balance due with filing. Nobody likes a large payment along with their tax return filing that could have been prevented throughout the year with planning and projecting.
Understand Your Income Streams
All of us have distinct types of income. If you are a W-2 earner, managing your federal withholding year over year is critical. If you are self-employed or an independent contractor receiving 1099 income, understand that you are not making tax payments as you receive income and may be subject to quarterly estimated tax payments throughout the year. You may also have supplemental income items such as interest and dividends, capital gains, passive rentals, or private equity income channels to consider. Understanding the ebbs and flows of your income and how it is treated will improve how well you can plan throughout the year.
Knowing What Deductions and Credits Could Apply to You
Contributing to a tax-deferred retirement account or an HSA are great ways to reduce taxable income. This applies to both wage earners and those that are self-employed. Knowing you are soon going to be claiming an eligible dependent or making a large, qualified energy efficient home improvement are just a couple of ways you may have your tax liability offset in a particular year. Informing your CPA in advance may open the door for tax efficient strategies such as converting funds in a Traditional IRA to a Roth IRA.
Whether you have been working for years or recently started your first job, it pays to understand what is unique to you and your tax plan. Contact your trusted Certified Public Accountant for any questions you may have regarding the planning and projecting for your 2024 tax return(s).
Published in the Victoria Advocate.
Hayden Schilling, CPA is a staff accountant for Keller & Associates CPAs, PLLC.