Are you ready?
Haunted Hayrides. Reruns of creepy classics. Grocery store clerks dressed up as Frankenstein. It must be the scariest time of the year, right?
No. The scariest time of the year, for way too many people, is tax season. This is because way too many people fail to plan for the inevitable. That’s right: you’re going to pay taxes whether you like it or not, so why not take control of the situation? Find out in advance what it’s going to look like. See if there’s anything you can do, now, to ameliorate the situation.
This means, if you run a small business, don’t put off your bookkeeping! It makes absolutely no sense to live to the brim of your cash flow for 12 months, and then 3 or 9 months later (whether you file on time or wait for the extension to run out), discover what an amazing year you had and how much tax you owe because of it. By fall of the following year, it is seriously too late to do anything about it. This is especially important for businesses due to the imposition of self-employment taxes.
Individuals who experience unusual events, however, could also benefit from a quick check on their tax status quo before year end. Did you exercise sizable stock options? Did the spouse with the tiny little part-time job move up to something steadier and effectively double the W2? Did you cash out an investment? Take a withdrawal from an IRA? Receive an inheritance and pay off your 30-year mortgage? Win the lottery?
Even if you can’t do anything about the taxes that are about to happen, you can start to save up to pay for them. This might not sound like fun, but it’s way better than sticking your head in the sand until the following fall when the big tax bill – and the accompanying fines and penalties – make themselves at home in your wallet or, worse, you end up with an IRS payment plan.
Fines and Penalties? Of course! Basically, the government figures if you are smart enough to make all that money, you are smart enough to understand your tax obligations, or at least to consult with someone who can explain them to you.
Recommendation: Go talk to your CPA. The best time is after October 15 and before Thanksgiving. Enough of your year has happened, most people can be fairly confident of the next couple months, and there’s still time to do something about it.