As this year is coming to a close, many of us are already thinking forward to tax time. Now is the time to look at your full financial picture while there is still time to make financial decisions that will impact your tax burden.
How do I get started on my tax projection?
First, contact your CPA to complete your tax projection so you know where you stand for the current tax year. A tax projection is like a tax return. It uses your current income and expenses to project your taxable income for the entire year and allows you to estimate your tax due.
What information is included in a tax projection?
To complete your tax projection, you’ll need to gather all the financial information that will impact your tax return. Tax projections for individuals may include the following items:
- Current paystub showing salary, withholdings, and retirement contributions.
- Estimated business income and/or year-to-date financial statements from sole proprietorships, partnerships, corporations, and rental properties.
- Gains/losses on sales of stock, business interests, tangible business property, and/or rental real estate transactions.
- Anything else included on last year’s tax return that applies again this year.
- Details about any changes to your circumstances. For example, did you get married or divorced? Have a child? Purchase or sell real estate? Change employers? Receive an inheritance? These are some of the life changes that will impact your tax situation.
I have my complete tax projection. Now what?
The next step is to calculate your final estimated tax payment for the current year. Compare the amount of total tax on your projection with total payments made through salary withholdings and estimated tax payments during the year. Ask your tax professional about providing a “safe harbor” calculation to avoid penalties.
You may want to invest part of your profits into your business and further reduce your tax liability. This is one of the biggest benefits to completing a tax projection before the end of the year. In our next article, we will share some ideas for reducing your personal tax liability, both for the current year and in the years to come.
Do you need help?
GunnChamberlain, P.L. specializes in assisting businesses and individuals with tax planning, compliance, and accounting services. If you would like to discuss a tax projection, or other business and individual tax and accounting questions, contact us to schedule a free consultation.