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Why You Should Do Annual Tax Planning

Why You Should Do Annual Tax Planning

Tax laws and your personal financial situation typically change every year. If you take a little time to review your tax situation each year, you can avoid mistakes and reduce your risk of accumulating IRS tax debt.

Tax Law Changes

Massive tax law overhauls—such as the Tax Cuts and Jobs Act (TCJA)—don’t happen very often. However, minor tax law changes happen every year and may have a big impact on your taxes.

Standard deductions, tax brackets, and some other numbers are adjusted for inflation annually. All of these little changes can add up and have an impact on your tax refund or balance due.

Avoid Repeating Mistakes

Many taxpayers were surprised by smaller refunds or bigger balances due when they filed their 2018 tax returns. That’s because their withholdings weren’t properly adjusted to account for all the changes made by the TCJA.

In response, the IRS relaxed the underpayment penalty rules for returns filed in 2019. However, some taxpayers still had unexpected tax bills to pay, along with interest.

To avoid the same issue next year, every taxpayer should review their withholding allowances and estimated tax payments. It’s unlikely the IRS will provide penalty relief again next year, so there’s even more reason to avoid underpaying your taxes throughout the year.

Account for Life Changes

Incomes go up and down. People start businesses or change careers. All of these events can change your taxes.

Even if your income remains constant, your tax situation can change. If your child turns 17, they no longer qualify for the child tax credit, which could result in a significant increase to your tax liability.

The important thing is to be aware of these changes so you aren’t surprised when you file your return. Many taxpayers with tax debt problems didn’t intend to get so far behind on their taxes, but they failed to plan and accumulated more debt than they could repay at once.

Take some time to review last year’s tax return and so if you need to adjust your withholding or estimated taxes, while also keeping in mind any changes you’ll experience this year. If you have unresolved IRS tax debt, contact a tax attorney to determine your best course of action.

Get help resolving your state or federal tax debt problems by calling The Gartzman Law Firm at (770) 939-7710.