It’s never a good feeling at tax time to learn that you owe money for one reason or another. It’s even worse when those taxes start to pile up or earn penalties on top of the amount owed.
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As the 2024 tax year comes to a close and you begin to look ahead to next year but find you’ve got a mountain of tax debt already on your plate, how can you catch up fast, and better yet, how can you get ahead so as not to make the same mistakes again?
Frank Remund, a CFP and IRS enrolled agent with Savvy Wealth, offered some strategies.
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While it may not help you get caught up on outstanding taxes, Remund recommended starting by taking a look at last year’s tax return (or the one where you incurred the tax debt). This can give you a benchmark to compare where you’re at now to see if you need to change your withholding.
“You can ask, ‘Am I the same, higher or lower [withholding]? And if I know I owed last year, or I got a big refund last year, how much am I withholding now?’” Remund said.
Remund recommended looking to see if anything has “materially changed” in income, deductions, number of children or marriage and so on, at which point you may need to change your withholding.
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If you’re employed but you owe a lot of taxes, there’s a good chance you’re not having enough taxes withheld from your paycheck, Remund said.
Remund recommended increasing your withholding in the fourth quarter to reduce the amount of taxes you may owe going forward.
Another issue that could be hurting you in your taxes is that, if there’s a significant income discrepancy between you and your spouse, say one of you is a high earner and the other is not, but you’ve set your withholding too low to account for your joint earnings, you could be paying too few taxes. Remund recommended adjusting this to make sure you’re paying the right amount.
Additionally, for a couple filing jointly who are retired and both at least age 59 ½, you want to be careful about keeping your income at a low enough tax bracket so that you don’t end up paying too much in taxes on things like your investments while taking withdrawals from retirement accounts, such as dividend-earning stocks.
