You don’t have to wait until the last moment to address taxes.
There’s a reason CPAs work such long hours during tax season: Most people don’t deal with their taxes until the last possible moment — particularly if they owe money. But there’s a powerful argument to be made for dealing with this responsibility more incrementally throughout the year. Aside from lessening your worry and guilt over what’s owed, you’ll also be able to make smaller, more manageable payments.
Bundled Services
Certified public accountants will typically offer bundled services for a fixed monthly fee. This allows the firm to monitor your income and expenses throughout the year. These services also include bookkeeping, payroll and general financial consulting, all of which are especially valuable to business owners. Freelancers and those who work from home also take advantage of these services since their taxes aren’t automatically deducted from a regular paycheck by their employer. But it’s a useful service for anyone who wants to stay on top of their tax responsibility, rather than having to deal with it all at once every spring.
Managing Expenses
Addressing your tax responsibility on a monthly or quarterly basis can be much easier on the pocketbook. Depending on how much they needed, bundled services may also end up saving money, since monthly arrangements eliminate the hourly bills for these same services. You pay a CPA for their knowledge and expertise, but also their time — and those invoices can stack up. Working on a monthly basis also allows CPAs to adjust to changing laws and business practices in real-time. Trends will become clear sooner as they monitor things like payroll, financial reporting and bookkeeping throughout the year.
Required Estimates
Those who are self-employed and certain other wage earners may be required to pay estimated taxes each quarter through IRS Form 1040-ES. Estimated taxes are owed on income that’s not subject to withholding, including interest, stock dividends or sales gains, business earnings and taxable alimony. Those who do not pay taxes through quarterly estimated payments — or traditional withholding — are subject to penalty for underpayment. The exceptions are for those who will owe less than $1,000, and for those whose withholding amounts to at least 90 percent of their total tax, among others.
