Simple Tax Planning
We all budget in some form or another without realizing that that’s what we’re doing. We do it when we shop, when we take trips, and during tax season when we have unexpected results on our tax return. Most of the time, we wish we would’ve paid more income taxes during the tax season and we don’t know where to start. If you don’t want to end up with an income tax bill next year, start planning now by taking these steps:
Prepare a personal budget
Determine the additional amounts to pay
Choose a method of payment
To start, calculate your earnings based on the 2013 figures and adjust for changes in expected income. Next, verify that your tax liablity will remain in the same range. Finally, deduct the personal expenses you foresee ahead. These expenses include rent, insurance, transportation, etc. You can use a spreadsheet or you can use a budgeting software such as mint.com, ynab.com, or quicken, to name some of the more popular ones. See this article for a comparison of budgeting software’s:
It might be time consuming but after investing the time you’ve also now prepared yourself to apply for loans and scholarships, as well as get closer to planning for your retirement.
You can choose to pay a quarterly estimated tax payment to the IRS for the additional amount or you can adjust your W-4 to reflect the increase by either reducing your withholdings or requesting a flat “additional amount withheld.” If your earnings are volatile and want to retain control over changes to your income tax payments, opt for making quarterly estimated tax payments.