It's a new year, a second chance to reach your financial goals. Use these 5 tax tips to start the near year with a clean slate. You'll avoid tax problems, and take care of existing ones.
1. Double Check Your Federal Income Tax Withholding
One of the top reasons taxpayers will owe the IRS is because they didn't withhold enough funds for federal taxes. If you owed taxes last time you filed, go to your payroll office or talk with you accountant to correct the issue.
Do it Yourself: Use IRS Form W-4, Employee's Withholding Allowance Certificate to make changes to your existing exemptions to tax.
For detailed instructions on how and when to change your W-4, see the article Federal Tax Withholding Requirements for Wage Earning and Self-Employed Taxpayers.
2. Start making Estimated Tax Payments
It's hard to pay your own taxes when you're self-employed, you don't have an employer doing it for you. Do yourself a favor and start the year off making your required estimated tax payments. You should pay estimated tax payments if the following rules apply to you:
-If, after subtracting any credits you are eligible for along with any federal withholding from any other income sources, you expect to owe at least $1,000 in tax, and…
-The credits and withholdings are less than 90% of your current tax due or 100% of the tax due on your previous year return,
These rules are general and each taxpayer's situation is unique. If you feel unsure, consult with a tax professional.
3. Keep your financial files in order
Start now and it will be easy for the rest of the year. Keep all of your important tax documents and financial documents nearly filed away and you'll pay your taxes on time and be ready in the event of an IRS audit.
4. File and pay on time
Do not put this off anymore. If you owe the IRS, get to work with a professional to take care of this problem ASAP. Get compliant and file any unfiled years. If you're up-to-date on tax filings, keep up the good record and file on time this year. Nothing will screw up your financial life more than having your taxes unpaid.
Excellent Financial Tips for the New Year
I'm in the process of compiling some of the best financial guides on the web. I find that people who owe the IRS typically have a chaotic financial life in general, and I want people to see 2011 as a fresh new year to get those problems under control.
Check out Get Rich Slowly's guide on How to Take Control of Your Finances in 2011. This one covers nearly all of the bases for those who want to start 2011 right financially.