It seems like the one question I get asked the most when it comes to taxes is: “How much is my refund?” The real question should be: “Why am I getting a refund?” Getting a refund means you have over paid your taxes and have given the Government an interest free loan for nearly a whole year. That was your money to start with. And you don’t even get a thank you from the Government!
Tax planning not only helps you to pay only what you need to throughout the year, but it also can save you taxes. By putting strategies in place to decrease the amount you pay, you will have more of your hard earned money in your pocket. For this to work, there are some deductions that must be taken at the right time. Some strategies, such as paying into a retirement plan will give you up to April 15th of the following year to contribute to, and will reduce the amount of tax you owe but if you didn’t plan for it ahead of time, you can miss the deadline. Other strategies such as using a medical reimbursement plan must be put in place and be active for most of the tax season to be effective.
Reducing the amount of taxes you owe is important, but paying too much or too little can also be a problem. The goal of tax planning is, to get your payments (whether by withholding or by estimated payments) as close as possible to the amount you will actually owe at the end of the year. If you are used to getting a large refund this can be a problem because now you have to find other ways to fund such things as vacations. Good tax planning will also help you with budgeting and saving for larger purchases. It can also work the other way – if you have been paying taxes and possibly penalties good tax planning will allow you to make better use of your money by avoiding those penalties in the first place.
Waiting until December or even January is not planning, it’s hoping. In order to really plan for taxes you have to start no later than September. Call us now to set up your tax planning appointment, and you can also find videos on our website to help you with planning.