Parting With Your Annual Tax Payments
As the 2017 tax season enters the final stretch, hopefully you've either already met with your CPA and filed your taxes or prepared them yourself ahead of the April 18 deadline, like the majority of Americans.
If you are expecting a refund, you are in the majority. Of the 152 million returns processed by the IRS last year, nearly 111 million resulted in a check from Uncle Sam, averaging $2857, according to IRS statistics.
Yet, many physicians pay far more in taxes to the government than necessary. No one wants to part with hard-earned money unnecessarily.
Why? Because sometimes it happens that their accountant doesn't know everything that he or she should. Or, in an effort to save money, physicians may use an online tool and prepare the forms themselves, ultimately making costly errors or overlooking potential savings. Either way, ignorance and lack of attention to detail are often the culprits for mistakes, possibly resulting in paying a large tax bill.
By having too much withheld from your paycheck, you're essentially providing an interest-free loan to the government each pay period. Obviously, not paying enough taxes throughout the year is far worse, leaving you with a huge tax bill and possible penalties.
While it might be too late to do anything about that situation at this juncture of tax season, there are many ways to end up in a better situation next year at this time.
Preparation starts now, and that doesn't mean cleaning out another shoebox. Even if, like most doctors, you hire a CPA to prepare your taxes each year, it's in your best interest to know the basics and a few tips of the trade.
It could be as simple as adjusting your withholdings on a W-4 form if you are employed—especially if you got married, divorced, had a child, bought a home, started a new job, etc.—or knowing what you can deduct if you own a private practice or are an independent consultant.
Reed Tinsley, a Houston-based CPA, certified valuation analyst, and certified healthcare business consultant, suggests that you start the tax planning process by trying to identify withholding errors. The most likely scenarios for under-withholding include:
You are married, and both you and your spouse work.
You or your spouse works more than one job at the same time.
You can be claimed as a dependent on someone else's return.
You receive significant non-wage income (from interest, dividends, capital gains, alimony, and so forth).
You have self-employment income and owe self-employment tax.
On the other hand, some situations could signal that you're withholding too much:
You received a refund last year, and income and deductions are about the same this year.
You will have significantly lower income and/or higher deductions than last year, and/or will be entitled to credits that weren't allowed last year.
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Any views expressed above are the author's own and do not necessarily reflect the views of WebMD or Medscape.
Cite this: Karen Riccio. Are You Leaving Tax Money on the Table? - Medscape - Mar 23, 2017.
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