Making last minute tax adjustments for 2015 could save you money

Income tax advice from Morgan’s Accounting and Tax Service in Wendell NC

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Income tax planning saves money!

With 2015 coming to a close, it might be prudent to consider making adjustments to manage your tax liability.

Compare your income now with what you anticipated when you set up your 2015 tax withholding or estimated tax payments. Is the income what you expected? More? Less? If more, do you need to increase your withholding or your estimated payments to ensure you’re not under withheld and subject to penalties?

Remember, there’s a withholding safe harbor that allows you to pay either 100 percent of your prior year tax liability or 90 percent of your current year liability to avoid penalties. For those who make more than $150,000, the safe harbor is met when you pay 110 percent of your prior year tax liability or 90 percent of your current-year liability.

Note also that if you are making estimated payments, the final payment is due Jan. 15, 2016. Assuming your income for the year is evenly distributed, this should be the fourth of four equal estimated tax payments.

If your income is not evenly distributed over the year, then making estimated tax payments is more complex. The tax system is a pay-as-you-go regime and you cannot backload your estimated taxes. Failure to make estimated payments mirroring the timing of your income will result in IRS penalty and interest charges, notwithstanding that you have had the appropriate amount withheld for the full year.

Taxpayers with wage income and who have withheld less than they should have for 2015 should consider paying more tax by adjusting withholding immediately. Because any tax paid through employer withholding will be treated as paid evenly throughout the year, you may reduce the amount under withheld in the past by increasing the amount currently withheld.

If you are under withheld and neither your spouse nor you works for an employer, then pay the under-withheld portion as soon as possible. Each day you are under withheld adds to IRS-imposed penalties and interest.