9. What is the best way to plan for payment of the current years income taxes?

If your income and deductions are fairly predictable or consistent, you can complete tax planning for the year in question to figure out the estimated amount of total tax due. You may pay this tax as you go either through withholding or estimated tax payments. Withholding is usually done if you earn your money as an employee, estimated tax if you don’t.

If the underpayment of tax is $1,000 or less the IRS will not charge you interest and penalties if you pay the tax by April 15th. This is also the case if you at least match last year’s tax liability or pay 90 percent of the current year’s liability. This creates some slack in the system. You can take advantage of this slack by arranging your withholding or estimated tax payments to hit the minimum. This way you will be paying on the day due rather than getting a refund. This is the IRS’s interest-free loan to you.

We will be glad to help you with planning for taxes for the current year. Many clients engage our services to project their tax liabilities for the year in the Fall so they can maximize tax benefits before the end of the year.

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