Changing Economy and Taxes
Over the past few years, we’ve seen a change in many taxpayers’ streams of income. Some taxpayers are leaving their one main job and replacing that income with a variety of sources of income. They may have retired and will be collecting benefits such as a pension or Social Security. Or they may have decided that they want to be their own boss thus becoming self-employed. Or they may be working as an employee for two or more different employers. Some may have inherited some assets which will bring them a new stream of income. All of these situations have one thing in common – they cause the need for a periodic analysis of income, deductions and credits and potentially the need to pay estimated income taxes.
In general taxing agencies require the income tax to be paid throughout the year – not waiting until the end to see what is due. Often the agency will impose penalties for underpayment of taxes if withholding and payments are not enough. Most times, when a person has several sources of income, the withholding (if there is any) is not enough to cover as the payer is only withholding for the income they are paying out. Sometimes there is no withholding as with self-employed persons. Additionally, the self-employed person is required to pay self-employment tax on their working income. The taxpayer’s job is to put all the pieces together to determine if payments are needed. Much of our off-season work is to assist our clients with this issue.
Contact Ian Valdivia or Marion Thompson for more details about your personal situation.