It's time to take a closer look at your pay stubs to see if you had enough withholdings for your income. It's a good idea to consult a tax professional to help you figure how much tax liability you'll have based on your estimated income for the year, so you can plan accordingly.
If you are self-employed and have to pay both income tax and self-employment tax on your net profit, you want to make sure you pay in enough tax during the year to avoid an underpayment penalty. If you have not paid estimated taxes quarterly or if your income has increased and your estimated tax payments you made will not be enough, you may increase your tax withholding either from your other job or from your spouse's job. Unlike estimated tax that's due quarterly, withholdings from your pay checks are considered to be paid evenly throughout the year, even if it's paid in December.
Having a good tax return takes some preparation. In addition to checking your pay stubs, make sure you have your tax records in order: your mileage records, receipts for your tax deductions, business records, etc. Did you have a lot of medical expenses? Donations? Volunteer expenses? Did you have any casualty/theft loss or bad debts? If you sold any investments, where are your records for your cost basis? Did you make home improvements that will qualify you for the new energy credit? Did you have a new baby during the year? Make sure you get the child's social security number for those wonderful tax deductions and credits.
Did you know that if you are a reservist called to active duty after Sept. 11, 2001 and if you had taken an early distribution from your IRAs, 401(k) plans and 403(b) tax-sheltered annuities, you can amend your prior years' returns to get back that 10% penalty you had to pay? The Pension Protection Act of 2006 signed into law by President Bush in August eliminates the 10% penalty for reservists called to active duty for at least 180 days or for an indefinite period. Eligible reservists activated after Sept 11, 2001 and before Dec 31, 2007 qualify for this tax relief.
Did you also know that in the upcoming tax season, you will have more choice for direct deposit of your federal income tax refund? Starting in January, you may split your refund and have it deposited in up to three checking or savings accounts and three U. S. financial institutions. You may do this on an electronically filed return or a paper return -- just make sure to have the correct bank routing numbers and your account information. |
