Did your 2011 income tax bill catch you by surprise? A simple review can prevent that from happening next year, says Melanie Lauridsen, a tax technical manager with the American Institute of CPAs.
"People often assume they're paying enough through withholding," says Lauridsen. "So when they end up owing taxes they are surprised." Her recommendation: At the beginning of the year ask your tax professional to estimate your tax bill. Then, each quarter, compare your current withholding to the estimate. If it looks like you're coming up short, you'll still have time to make the necessary changes before a big tax bill arrives next April.
Consider the following steps to prevent an unpleasant tax surprise next year:
Boost your withholding
If you owed a lot to the government this year, your employer may not have withheld enough from your paycheck. Check out the SunTrust calculator to see how adjustments to your W-4 form can bring your withholding in line with your tax liability.
Consider boosting your withholding if you expect to receive additional income from other sources, such as self-employment income or stock options.
Contributions to tax-deferred retirement accounts such as 401(k)s and traditional IRAs can lower your taxable income. "Retirement contributions are one of the main ways taxpayers can lower their tax bills," says Lauridsen. Bear in mind that IRA contributions for 2012 can be made up until April 15, 2013. To find out more about tax-advantaged retirement savings accounts, you can meet with the retirement specialist in your neighborhood. Just call or stop by the branch to make an appointment. Visit suntrust.com/retirement or call 800.511.2276 to learn more.
Check your portfolio
Selling stocks for a loss can offset taxable gains on sales of investments. And if you didn't realize any capital gains -- or if you realized more losses than gains -- you can apply up to $3,000 of the loss against your regular income.
Keep clear records
If you keep a clear record of business expenses, charitable donations, childcare bills and other deductible expenses, you won't forget them when it comes time to do your taxes. This small investment of time could save you thousands of dollars and a good deal of stress.
No one likes owing money to the government. But a substantial refund isn't much better -- it means you overpaid throughout the year. "The ideal situation is that you don't owe anything nor is there a refund," says Lauridsen. "You can do that with proper tax planning."