For many people, last Thursday marked the end to another tax season. For many more, it has just begun. For those who have just begun, they have learned that they did not withhold or pay enough and now they owe a large sum of money to the IRS and/or their state depart of revenue.
Many of those people are today scrambling and trying to find how they are going to pay their tax debt. Will they rob their savings, borrow from a family member, seek a loan, put it on a credit card or work out a payment plan with the tax office? Decisions, decisions, decisions. Call it what you want, but unless we saved the money to pay for the taxes we owe, we most likely will go into debt to pay the tax bill.
Can I suggest a better way? My suggestion will not take care of what you owe now, but it will prepare you for your 2010 taxes.
First, if you are an employee, take advantage of the IRS withholding estimator (http://www.irs.gov/individuals/page/0,,id=14806,00.html ) and modify your W4 so that the correct tax dollars are taken out. This tool’s goal is for you to owe nothing and get nothing back as a refund. What a feeling each year to know that all your taxes have been paid and, even better, you are getting nothing back! Yes, you read it right – no refund. You received your full income each paycheck and that allowed you to follow the financial plan in your life.
Second, for small business owners, contractors, etc. – save money for taxes and file quarterly payments. Setting aside a specific percentage of your income each month will allow you to file the quarterly taxes that will put you at or very near a break-even point each tax season.
Both of these scenarios involve planning. Proper planning will keep you from owing that large sum next year and keep you from getting a huge refund. Now is the time to make the changes for the 2010 tax season.
How’s your plan working for you?
