If there is one thing that people love to commiserate about together, it is the amount of taxes they pay each year. Your tax liability may fluctuate from year to year based on different factors. For many people, one of the most stressful aspects associated with paying taxes is the uncertainty of what their total tax amount due for the year may be. Many people have had the unfortunate surprise of facing a huge tax bill, and this can be a burden on you financially. By planning for the next tax season now, you can take steps to avoid having a huge tax bill or to start saving money to pay for your tax bill now.
BECOME FAMILIAR WITH CHANGES TO TAX LAW
The first step that you should take today to plan for the next tax season is to familiarize yourself with changes planned for the next tax season. During some years, the changes to tax law are minimal or may have little effect on your tax liability. Other years, however, changes to tax law could be significant to you. Take time to read more about the changes planned for you. Pay attention to any changes that specifically would affect you.
PREPARE A MOCK TAX RETURN
After you have familiarized yourself with changes planned for the next tax season, prepare a mock tax return to estimate your tax liability. One rather easy way to do this is to take out the last tax return your filed and print out a blank tax form to complete. Put both documents in front of you, using last year’s tax return to guide you. Fill out the new tax return based on projected numbers for your income, tax withholdings and more. Take time to thoroughly consider each number that you write into the new form. The more accurate these numbers are, the more accurate your estimated tax liability for the next tax season will be. If you have access to it, a visualisation software such as Microsoft’s Power BI can greatly improve your productivity, helping you to find new insights in your financial data and save money in the long run.
REVIEW AND PLAN
After you have prepared your mock tax return, take a closer look at your total tax liability as well as the amount that you are currently paying through the pay-as-you-go withholding system. You can consider different steps that you can take during the tax year to maximise your deductions in order to offset your tax liability. If you are not familiar with the tax deductions available to you, consider educating yourself about the different deductions available to you. You can also speak with a tax accountant or financial planner who may be able to help you strategise for the upcoming tax season.
Planning for the next tax season is never fun and exciting. The last thing you may want to do is prepare a mock tax return and read about tax changes when it is not required of you to do so. However, this extra effort on your part today can help you to keep your tax liability as low as possibility during the next tax season, and it can help you to avoid being surprised by an unexpectedly large tax bill too!