Nearly 83% of the 50 million returns processed yearly by the IRS result in refunds, with an average refund of $3,120. However, there are many circumstances when one is told the dreaded opposite - that money is owed the IRS or state during tax season.
Some reasons you may owe money:
1. You failed to engage in tax planning. There is little that can be done in January-April to turn back the clock to the previous year. The key is to have a tax plan in place during the year. Business owners could pay business expenses before year-end, defer income, invest in equipment, and offer employee bonuses. Individuals could accelerate or increase charitable contributions and pay off medical expenses. There are strategies that can be engaged with professional assistance.
2. Your withholdings were incorrect. Did your income increase significantly? Are you self-employed with fluctuating income? Determining an accurate withholding amount can prevent sticker shock during return preparation.
3. You didn't pay estimated taxes. Perhaps you sold a property and did not pay estimated taxes. Typically, you are responsible for making estimated tax payments if you expect to owe $1,000 or more for the year. Paying estimated taxes can prevent you or your company from a surprise at tax time.
It is essential that you engage in tax planning year-round to avoid unexpected tax liability.
Contact us here to learn how Koerner & Associates can help.