7 Ways to Catch Up on Your Taxes Quickly Before Tax Season

It’s never nice 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 result in penalties on top of the amount owed.

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As tax year 2024 comes to an end and you start to look ahead to next year, only to discover that you already have a mountain of tax debt to pay, how can you catch up quickly and, better again, how can you move forward? to avoid making the same mistakes again?

Frank Remund, a CFP and IRS enrolled agent at Savvy Wealth, offered some strategies.

Take a look at last year’s taxes

Although it won’t help you catch up on your unpaid taxes, Remund recommends starting by taking a look at last year’s tax return (or the one in which you incurred the tax debt). This can give you a baseline to compare where you are currently and see if you need to change your withholding.

“You can ask: “Am I the same, higher or lower (restraint)? And if I know I owed last year, or I received a large refund last year, how much should I withhold now?’” Remund said.

Remund recommended checking to see if anything has “materially changed” in terms of income, deductions, number of children or marriage, etc., in which case you may need to change your withholding.

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Increase your W-4 withholding

If you’re employed but owe a lot of taxes, there’s a good chance you don’t have 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 have to pay in the future.

Make sure you don’t pay the “marriage penalty”

Another issue that could hurt you when it comes to taxes is if there is a significant income gap between you and your spouse, let’s say one of you has a high income and the other doesn’t, but you have set your withholding tax too low to take this into account. on your joint income, you could pay too little tax. Remund recommended adjusting this to make sure you’re paying the right amount.

In addition, for a couple declaring a pension jointly and both aged at least 59 ½, you must ensure that your income is kept in a sufficiently low tax bracket so as not to end up paying too much tax on things like your investments while making withdrawals from retirement accounts, such as dividend-paying stocks.

Reduce your taxable income

One of the best ways to pay less taxes is to reduce your taxable income, Remund said. If you’re not self-employed or running a small business, where you can write off many expenses, the best way to do so is to contribute to tax-advantaged accounts such as 401(k) plans and IRA, Remund suggested.

You can even create one for a non-working spouse and use annual catch-up contributions, if you or your spouse are 50 and older, to supplement this account and reduce taxable income.

Automate your savings

If you’re someone who struggles to save money, Remund recommends making it easier on yourself by not letting your savings depend on your willpower or mood.

“Automate the monthly contribution payment process. If you know your big paychecks are fifth or tenth, make sure that money gets transferred first, whether it’s $50 a month or $100 a month to put into the account.

Create a dedicated tax savings account

If you’re among those who find it too tempting to spend the money you should be saving for taxes in your regular checking account, Remund said, “Some people need to set up a separate tax savings account.” If you’re self-employed, sole proprietor, whatever, you figure a third of that is gone because you have to pay self-employment tax plus federal and state income tax, so (you don’t You’re) not surprised when tax time comes.

Check for radiation

For the self-employed, whether you are a sole trader or independent contractor or run a small business, remember to find every possible legal deduction to reduce your taxable income. It may be best to do this with the help of an accountant so as not to write off ineligible expenses.

Remund said not every write-off will net you big discounts, like depreciating a vehicle or adding new solar panels to a house, depending on where you live, but at the same time, every little bit account.

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This article was originally published on GOBankingRates.com: I’m a Financial Advisor: 7 Ways to Catch Up on Your Taxes Fast Before Tax Season.