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No one likes being surprised when tax time rolls around. Find out how you can effectively plan ahead.
Q: When I finished preparing my tax return for this year, I discovered I owed the government close to $10,000, which was far more than I thought I'd have to pay. How do I avoid future surprises like that?
A: Sometimes the situation you describe can't be helped. Maybe your practice had an especially good year or you earned a large one-time consulting fee. Even those of us who don't see payments like that face occasional tax surprises. Those surprises are maddening, but you can use a few tricks to keep them tolerable.
Effective tax planning is done in real time. It's done with a bit of research, good record-keeping, and deliberate decision-making. Most taxes are saved by not incurring them in the first place.
The same principle holds true for charitable giving. In general, gifts given by December 31 count toward that year's tax. Because taxes usually aren't prepared until April (much of the required paperwork doesn't come until late January or after), it's difficult to measure tax effect without some late-in-the-year projections. Talk with your accountant each December to "mock up" that year's income obligations. Then you can make informed decisions about giving.
Remember these three steps: research, record-keeping, and deliberate decision-making. Useful tax-related information is available on the Web, or at the library or bookstore. If you don't want to do the research yourself, hire an adviser or ask your accountant. The point is, don't wait until your taxes are prepared or until they are due before acting.
The answer to this question was provided by Dan Danford, principal/chief executive officer of Family Investment Center, St. Joseph, Missouri. Send your money management questions to firstname.lastname@example.org Also engage at http://www.twitter.com/MedEconomics and http://www.facebook.com/MedicalEconomics.