For many Americans, the process of filing 2016 tax returns is now in the rear view mirror. Some wound up receiving a hefty refund check, whereas others may have found themselves facing an unexpected bill. Either way, it is important for taxpayers on both sides of the ledger to realize that there are valuable lessons to be gleaned from this season’s results which can be used to engage in sound, strategic planning designed to reduce their liabilities for the rest of the tax year.
Now is the prime time for tax planning
Don’t miss a golden opportunity to make some lucrative adjustments to your overall financial plan. This year’s filing can provide real insights that can produce significant savings in years to come, particularly for those who found themselves owing money for 2016. Taking a few simple steps in reviewing your 2016 tax strategy may yield surprisingly substantial rewards when tax time rolls around once more.
Taking a fresh look at the W-4
Taxpayers who find themselves owing a sizable amount at filing time or, alternatively, those who receive a large refund can likely attribute either result to the information previously entered on their W-4 form at work. The W-4 is the document completed by an employee that informs his or her employer of the proper amount of money to be withheld each pay period for federal income tax purposes. Typically completed at the commencement of a new job, employees need to remember that they do have the option of revisiting their information in order to update it to reflect changes in personal circumstances or preferences.
Those who claim a greater number of allowances on the W-4 will have a smaller amount of wages withheld from each paycheck (thus, boosting take-home pay), while those who claim fewer allowances will have more money withheld for taxes (reducing take-home pay). Because the amount withheld over the course of the year is ultimately credited toward the overall taxes assessed as due, those who have had too much held back will be owed a refund, while those whose withholdings were too small will receive a bill from the IRS.
Individuals who work multiple jobs, those who receive sizable amounts of unearned income such as dividends and interest, or those who engage in freelance endeavors would be wise to conduct an analysis of expected liabilities so that appropriate adjustments may be made on the W-4 form. In this way, it is possible to spread liability more evenly throughout the year and avoid a large tax bill that may be difficult to pay all at once.
Consultation with a tax professional can make the process of analyzing W-4 allowances much simpler and lead to a much more beneficial outcome in 2017.
Proactive organization of future deductions
Another lesson that can be learned from this year’s tax filing process relates to the importance of foresight and organization in terms of itemized deductions. If this year’s tax preparation work was characterized by a mad dash to assemble receipts and other documentation of business expenses, charitable donations and the like, now is the time to formulate a plan of action to keep detailed and easily-accessible records. Making an effort to memorialize these types of tax-relevant events in real time as they occur will make all the difference in ensuring accuracy and maximization of every dollar in available tax savings.
Additional steps taxpayers can start taking now
The above tips are just a few of the ways in which the lessons of 2016 taxes can be used as planning aids for the remainder of the year. The tax professionals at Rosenberg Martin Greenberg stand prepared to offer guidance on additional ways of minimizing liability, such as increasing 401(k) contributions and the savvy use of minimum IRA distributions to meet personal charitable giving objectives. As always, a detailed examination of individual circumstances is vital to crafting a tax plan that achieves not only a client’s financial goals, but also full compliance with all state and federal laws.
Experienced, trustworthy tax counsel for individuals and businesses
When it comes to assisting taxpayers in the Mid-Atlantic region with compliance, planning and controversy concerns, the Maryland tax attorneys at Rosenberg Martin Greenberg are ready to serve. If you would like to receive a comprehensive assessment of your specific tax scenario, a confidential consultation can be scheduled by contacting us today.
Additional “2016 tax returns” resources:
- Forbes, Figuring Out Your Form W-4: How Many Allowances Should You Claim?, https://www.forbes.com/sites/kellyphillipserb/2016/03/11/figuring-out-your-form-w-4-how-many-allowances-should-you-claim/#20a2b72c402d
- Internal Revenue Services, Retirement Plan and IRA Required Minimum Distribution FAQs, https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-required-minimum-distributions