Getting hit with a big, unexpected tax bill can feel frustrating, especially when you thought you were doing everything “right.”
Most surprise tax bills are usually the result of a small gaps that went unnoticed throughout the year.
Here are three steps to reduce the chances of this happening when you file again next year.
Step 1: Review your completed tax return to identify the issue
Before changing anything, you need clarity on why the bill happened and what caused the gap.
You might find on your tax return:
- Were you withholding enough from your paychecks, bonuses, or company stock payouts like vesting RSUs?
- Are you in tax-inefficient investments in non-retirement (taxable) accounts. Those dividends and interest payments can add up without you noticing it.
- Did you execute a Roth conversion or realize significant capital gains earlier in the year and forget to account for the tax liability?
- Were you making income from a side business or 1099 work that wasn’t being accounted for?
- Did you miss a quarterly estimated tax payment?
- Did you forget to upload a key document or plug in a notable item that might have an impact on the tax bill?
Step 2: Make the adjustments for next year
Once you know the issue, consider the following:
- What might be different about this tax year compared to the tax year you just filed for?
- Talk with HR about updating your payroll withholding or consider making quarterly estimated tax payments
- Review your brokerage accounts for more tax-efficient investment strategies
Small adjustments made early in the year are far less painful than scrambling at tax time and can avoid penalties as well.
Step 3: Know When to Get Help
If Steps 1 or 2 feel overwhelming, or you’re not confident you’re reviewing the right things or taking the necessary actions, it may be time to bring in professional support.
We can help review and discuss these questions proactively, consider new strategies, and introduce you to/collaborate with a qualified tax professional.
Because mid-April should be focused on yardwork, Little League baseball, and the Masters golf tournament – not stressing over your taxes.
Investment Advice offered through FC Advisory LLC, a registered investment adviser doing business as “Financial Coach” and as “New Wealth Project”. This content is provided for informational purposes only and is not intended as personalized investment advice. Information provided is not and should not be interpreted as investment, tax, legal, or other professional advice or recommendation by FC Advisory, LLC or the members of our firm. Always consult the appropriate professional regarding your specific situation before implementing any options presented or inferred.
