Money at 30: The Tax Man is Coming
In all of these cases April can be a time of great shock and despair, made even worse by all of those who flaunt their tax refunds. Luckily you still have a few months to go before Tax Day 2017 comes around. With that in mind I thought I’d share a few things I’ve learned about taxes over the years and offer a few tips for reducing your payment pain.
Double check your tax filings
One of the problems I came across back when I worked at the movie theatre was that I wasn’t withholding enough tax on each of my paychecks. This meant I ended up having to write a depressingly expensive check to the Feds every year. The reason for this was that the W-4 I filled out when I was 16 years old had remained in effect even though I was now making much more and living on my own.
If you find yourself continually having to pay additional taxes every April it may be time to fill out a new W-4. In addition to claiming fewer dependants on your form, you can also have them hold onto a certain dollar amount per check that will help avoid the need for extra payments. Also be aware that having multiple jobs can also serve to mess up your tax withholdings so be prepared for that by having your main gig withhold more.
For the self-employed, consider bookkeeping software
Incidentally, if you are self-employed, you may actually need to start paying your taxes quarterly. In fact failing to do so could result in a penalty if you do it more than once. But figuring out how much you’re supposed to pay can be difficult especially if your work is inconsistent.
This is where bookkeeping software can some in handy. Personally I use QuickBooks Self-Employed, which makes it easy for me to track business mileage, categorize all of my expenses, and of course estimate what my quarterly tax payments should be. As a bonus using the software also helps me make sure that I’m deducting everything I should and paying the good ol’ government as little as possible.
Start thinking about your taxes now
Finally, if you know you’re going to get hit with a big tax bill, start doing something about it now! This could mean finding additional deductions you qualify for, making a contribution to your retirement account before April, or just setting aside money so it’s ready to send in on April 15th. A bonus word to wise: if you don’t already have health insurance you’ll probably also want to head over to Healthcare.gov to ensure you don’t end up having to pay that penalty again next year (assuming the bill is still intact by then…).
As someone who’s endured plenty of harsh Tax Days, let me advise you that now is the time to get thinking about that looming date. Whether you’re self-employed or there are other issues complicating your tax withholdings, there are ways to prepare yourself and your finances for when the bill arrives. Whatever you do just be sure that you’re doing everything on the up-and-up so the tax man doesn’t pay you an even more dreaded visit in the form of an audit (thankfully I have no experience with that one). Good luck.