- If you had a surprise tax bill this season, it’s not too soon to prepare for next year, financial experts say.
- Three smart options are to review your 2022 filing, check withholdings and revisit your portfolio.
If you had a surprise tax bill this season, it’s not too soon to prepare for next year, financial experts say.
As of April 14, the IRS processed nearly 76 million refunds, with an average payment of $2,840, which is 8.5% smaller than refunds at the same point last year.
Typically, a refund comes when you’ve overpaid throughout the year, whereas you get a tax bill for not having paid enough. Here are some moves to consider, regardless of what happened this season.
1. Review your 2022 return
“If you had an unexpected tax bill last year, the first step is to understand why,” said certified financial planner Eric Scruggs, founder of Hark Financial Planning in Boston. He is also an enrolled agent.
For example, there’s a difference between higher income from a one-time event, like a big bonus, and recurring revenue from a successful side hustle, he said.
For the latter scenario, there’s plenty of time to make quarterly estimated tax payments or adjust paycheck withholdings at your job to lessen your bill for next year, Scruggs said.
2. Check your withholdings
If you owed more taxes than expected for 2022, you may revisit your paycheck withholdings for 2023 and make the necessary adjustments.
Kevin Brady, a New York-based CFP and vice president at Wealthspire Advisors, said you can either decrease your number of allowances or set aside more from each paycheck. Both happen on Form W-4 through your employer.
“A simple calculation would be dividing the extra tax paid in 2022 by the number of remaining paychecks in 2023,” he said.
3. Revisit your portfolio
You may not be thinking about next year’s taxes yet, but now is a great time to review your portfolio, said Brett Koeppel, a CFP and founder of Eudaimonia Wealth in Buffalo, New York.
If you have three types of accounts — brokerage, tax-deferred and tax-free — you can be strategic about where to keep assets. Since brokerage account investments are taxable, you may scrutinize those more closely, Koeppel said.
For example, income-producing assets, such as bonds, certain mutual funds or real estate investment trusts, may be more likely to trigger a yearly tax bill within a brokerage account.
However, if your earnings are low enough, you may not owe taxes on investments. For 2023, you may qualify for the 0% long-term capital gains rate with taxable income of $44,625 or lower or $89,250 or less for married couples filing together.
