How to Avoid a Surprise Tax Bill
April 12, 2023
Steps to Take if You Receive One
Tax filing season is here again, and millions of hardworking Americans are already dreaming of those big refund checks. Unfortunately, many of them may be disappointed this year.
Taxes can be a complicated and often stressful aspect of personal finance. Nobody wants to be caught off guard with an unexpected tax bill, but it can happen for a variety of reasons.
So, what can you do if you find yourself in this uncomfortable situation? How can you avoid ending up with a big tax bill this year? Here are some tips to help you avoid a tax bill and some advice on what to do if you get one. First let’s start off with how to avoid a surprise tax bill.
Keep track of your income and expenses throughout the year. One of the best ways to avoid a surprise tax bill is to stay on top of your income and expenses throughout the year. Keep track of all sources of income, including wages, self-employment income, and investment income. Then on top of that, keep receipts and other documentation for expenses you can deduct from your taxable income to ensure you have all documentation for your case if a surprise tax bill does come up.
Adjust your withholdings
Make sure your employer withholds the correct amount of taxes from your paycheck. If you've had a significant life change, such as getting married, having a child, or changing jobs, you may need to adjust your withholdings. Use the IRS withholding calculator to ensure you're withholding the correct amount.
Pay estimated taxes
If you're self-employed or have other sources of income that aren't subject to withholding, you may need to pay estimated taxes throughout the year. The IRS provides forms and instructions for calculating and paying estimated taxes.
Review your tax return
Review your tax return from the previous year to ensure you haven't overlooked any deductions or credits. This can help you avoid overpaying your taxes and receiving a surprise tax bill.
If you find yourself in tax trouble (even if you have years of unfiled tax returns), reach out to our expert tax resolution firm
for a free, no-obligation consultation. While you wait to have your consultation, here are a few steps you can take to help you in your situation.
Review the bill & determine the reason for it
Carefully review the bill to ensure everything is accurate. As you are reviewing your bill, identify the reason for the bill. It could be due to an error on your tax return, an unexpected change in your income, or a change in tax laws.
Consider your options
If everything on the bill seems accurate and you are at fault for what the IRS is claiming you owe, you have a few options. If you can't pay the bill in full, consider your options for resolving the debt. You may be able to set up a payment plan with the IRS, negotiate a settlement, or a few other options to help aid you in your situation. However, do not ignore this tax bill as the IRS can be relentless in collecting what they believe is owed to them and ignoring the situation will make it much worse.
Seek professional help
Do not contact the IRS, without representation, as they can be very intimidating to the average taxpayer and are not on your side. If you are unsure how to proceed or need help negotiating with the IRS, consider seeking help from a CPA, Enrolled Agent, or an attorney that is also a tax relief specialist.
We have years of experience helping taxpayers just like you resolve IRS and state tax problems and negotiating the best deal on your behalf. If you owe the IRS money, contact us now
for a consultation to learn about your options.
By taking steps to avoid a surprise tax bill and knowing what to do if you receive one, you can minimize the impact on your finances and avoid future surprises. Remember to stay organized throughout the year, review your tax return, and seek professional help if necessary.
Under the new One Big Beautiful Bill Act (OB3), qualified tips are any cash tip received by an individual with a valid Social Security number and in an occupation that 'customarily and regularly' received tips on or before Dec. 31, 2024. They include tips that are paid in cash or charged. The Treasury Department has not yet released the “official” list of occupations that qualify for the No Tax on Tips Regulations. It is expected, though, that the job titles will include but not be limited to those listed below: 1) Food & Beverage : Bartenders, Wait Staff, Servers, Chefs, and Cooks 2) Entertainment: Gambling Dealers, Change Persons, Booth Cashiers, Dancers, Musicians, Singers, Entertainers, and Other Performers 3) Personal Services: Personal Care Workers, Private Event Planners, Photographers, Videographers, Event Officiants, Pet Caretakers, Tutors, Nannies, and Babysitters. 4) Personal Appearance & Wellness: Skincare Specialists, Massage T herapists, Barbers, Hairdressers, Cosmetologists, Manicurists, Exercise Trainers, and Group Fitness Instructors. 5) Recreation : Golf Caddies, and Tour & Travel Guides. 6) Transportation : Ride Share, Taxi, and Food Delivery, Drivers, Porters, and Sky Caps. The final list is expected to be issued in October, 2025. Some implications of the No Tax on Tips Regulations. First , the deduction is for qualified tips of up to $25,000 per year regardless of how many employers you have during the year. The tax savings will be in the form of a tax deduction when you file your Federal tax return the following year. Second , qualified tips must be reported to the individual on one of three forms to be eligible for the deduction; a) Form W-2; b) Form 1099-NEC, Nonemployee Compensation; or c) Form 1099-K, Payment Card and Third-Party Network Transactions. Third , it only applies to Federal income taxes. It does not include State, Local, Social Security or Medicare taxes. Finally, the maximum annual deduction of $25,000 for single filers and $25,000 each for joint or married filing separately filers phases out by $100 for each $1,000 for taxpayers with modified adjusted gross income over $150,000 (or $300,000 for joint filers). How Advantage Tax Relief Can Assist You At Advantage Tax Relief, based in Itasca, IL, we have over a decade of experience helping individuals and businesses resolve tax issues. Our team specializes in offering personalized tax relief and tax resolution solutions tailored to your unique needs. We will work with you to assess your situation and explore your options, whether it’s an Offer in Compromise, installment agreements, or other strategies. Our experience allows us to identify the best path forward to ease your tax burden and guide you toward financial freedom. If you're facing tax debt, don't wait. Advantage Tax Relief is here to assist you with effective, professional help. Call Advantage Tax Relief today at 630-773-3200 to schedule a consultation and take the first step toward resolving your tax issues.
First, working overtime does not mean you are getting an automatic increase in your take-home pay because it is not going to be taxed. That is not what is going to happen. The tax savings will be in the form of a tax deduction when you file your Federal tax return the following year. There will be no immediate impact. Second, it only applies for Federal income taxes. It does not include State, Social Security or Medicare taxes. Third, it also only applies to the overtime premium and within certain deduction and wage limits. You can only deduct the pay that exceeds your regular rate of pay. The 'half' portion of 'time-and-a-half' compensation. For example, say you make $20 per hour and work 5 hours of overtime that week at time-and-a-half. The deduction would the Federal tax on $50 of premium pay. ($20 divided by 2 times 5 hours) Finally, the maximum annual deduction is $12,500 for single filers and $25,000 for joint filers. The deduction phases out for taxpayers with modified adjusted gross income over $150,000 (or $300,000 for joint filers).
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