Planning Now Can Save Money On Taxes Later

by Lorne Meinershagen, Floyd, Meinershagen, & Co.

     Nobody looks forward to estimated tax payments, but paying more than necessary is even worse. When freelancers and business owners miss or underestimate their tax liability, the IRS charges them interest and penalties.
     The penalty for estimated tax underpayment is calculated and assessed separately for each payment period. Therefore, taxpayers may owe a penalty for a previous period even if they later pay enough estimated tax to make up for the previous underpayment.
     As a reminder, estimated tax is the method used to pay tax on income that is not subject to withholding. This income includes earnings from self-employment, interest, dividends, pensions and alimony.  Estimated taxes are required when your total year-end liability is greater than $1,000. To avoid IRS penalties, most self-employed taxpayers must ensure all four estimated tax payments add up to the lesser of these two amounts:

• 90 percent of the tax they estimate they will owe for the current year, or
• 100 percent of the tax they owed last year.

 
     Understanding your tax liability can be complicated, since you have to take into account fluctuating income, peak business seasons, planned equipment purchases, employee bonuses, new benefits plans and other variables that affect taxes.
     Tax experts recommend reassessing your finances in the third quarter before making the last two estimated payments for the year – due September 15, 2019, and January 15, 2020 – to gauge any income variations since your last payment or changes that could affect the amount of taxes you will owe for 2019.
     If your CPA or tax advisor has not contacted you about a tax-planning session, be proactive and schedule time to discuss how to minimize the amount of taxes you will owe on April 15.
     A good accountant can help you determine whether the best way to achieve your financial goals is to accelerate, defer or reduce your taxable income for this year. Keep these tips in mind as you prepare to make the last two estimated tax payments for 2019:

• Update your financials so you know both your year-to-date income and year-end projections.
• If your income is up, look for opportunities to shelter some money. Your CPA or tax advisor can provide guidance on various strategies, including equipment purchases, bonuses through your business, health savings accounts, retirement accounts, college savings, itemized deductions and other ways to help reduce your personal taxable income.
• If cash is tight, consider a bank loan or line of credit so that you can continue to pay taxes as you go and avoid IRS penalties associated with missed, delayed or inadequate quarterly payments. Remember it is financially ill-advised to use the IRS as a financing tool.

 
For expert advice on how to lower your tax liability in a free initial consultation, please contact Floyd, Meinershagen & Co. in Grain Valley at 816-847-0536, or visit www.floydmeinershagenandco.com to schedule an appointment.