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Tax season may not be on your mind as 2023 winds down, but being prepared can make Tax Day less unpleasant, especially if you need to be made aware of your IRS debt. CNET Money editor Liliana Hall lists reasons you may owe the IRS next tax season.
Photo from Google
Tips for Avoiding Surprises and Maximizing Refunds
First, if you get a raise or a better job in 2023, you may be in a higher tax bracket and pay more tax. Freelancers and small business owners must file as self-employed and pay quarterly estimated taxes.
Changes to your W-4 withholding status can affect your tax bill. Withholding too little can increase your tax bill while withholding too much can reimburse you. Small business owners and freelancers should estimate and pay taxes year-round. Withdrawing from a retirement account before 59½ can result in higher taxes. Unemployment benefits are taxable income, so your tax situation may alter if you move states or switch to FSAs or HSAs.
If you lose tax credits, you may have to pay back claims and interest. You must file your tax return early to establish what you owe and arrange payment by April 15. Saving 15% to 30% of profits for taxes depends on filing status and taxable income, according to experts. Estimate your tax liability with online calculators. Consider depositing tax savings in a high-yield account for interest.
READ ALSO: Today’s Mortgage Rates on Dec. 22, 2023: Rates Ease for Homebuyers
Lowering Your Spring Bill to Maximizing Refunds
If you paid estimated taxes, your spring tax bill should be lower or zero. For those who didn’t save enough, the IRS offers payment arrangements to avoid interest and penalties.
Maximize deductions and update your W-4 when circumstances change to ensure a tax refund next year. Get a tax refund to enhance your emergency funds.
For those who can’t pay their taxes, the IRS offers monthly installment plans, offers in compromise, and partial payments to avoid penalties. Being prepared might help you manage your finances and make tax season easier.
READ ALSO: 9 Reasons You Might Owe Money to the IRS This Tax Season
