Tax Day 2025 has come and gone! We hope for everyone's sake that no one had any unpleasant surprises. However, many people are often caught off guard when they see exactly how much they owe come tax day. What are some ways to avoid these unpleasant surprises? In this post, we will discuss ways you can avoid an unwanted tax bill next year.
Review your deductions and withholding on your paychecks throughout the year.
In the hustle of daily life, it's easy to overlook your paychecks. However, a few moments spent reviewing your deductions and withholdings throughout the year can save you from potential tax surprises. Begin each year by verifying your filing status and dependent information. Remember, life events like a new baby or a child aging out of dependency require W-4 updates. Don't hesitate to contact your employer to ensure accurate withholdings.
Consider making an estimated tax payment if you have large jumps in your income
A record-breaking year at work or a profitable investment can significantly impact your tax liability. To avoid potential penalties, consult your tax professional about making estimated tax payments. The IRS requires taxes to be paid throughout the year, not just at filing time.
Additionally, a large income increase may necessitate adjustments to your paycheck withholdings. Contact your employer to update your W-4 and ensure accurate tax deductions.
Review your tax figures from the year prior
To avoid unexpected tax penalties, take a look at your tax return from last year.
The IRS has rules to ensure you're paying enough throughout the year. You're usually safe if you've paid at least 90% of what you'll owe this year, or 100% of what you owed last year (110% if your adjusted gross income is above $150,000). This 'safe harbor' rule can save you from penalties.
Comparing your current paycheck withholdings to last year's tax liability can reveal if you need to make estimated payments or adjust your W-4.
Bonus tip: Plan ahead! Don’t wait until December 31st to figure out that you should be withholding more from your paycheck. Even worse, don’t delay this finding until April 15th!
It is always a good idea to get a jump on your tax return for the current year. Even if you don’t plan to file until the deadline (or even on extension), knowing what you will owe ahead of time can give you peace of mind come April 15th and help you avoid any nasty tax surprises.