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5 Things That Can Unexpectedly Raise Your Taxes

Tuesday, January 16, 2024

Primary Blog/OnPoint Tax Relief/5 Things That Can Unexpectedly Raise Your Taxes

Proper tax planning is a continuous effort that should not be deferred until the last minute. Waiting until April to evaluate your tax situation can result in unexpected surprises. Identifying factors that may unexpectedly increase your tax liability is crucial for maximizing your financial resources. Here are five factors to be mindful of that could unexpectedly raise your year-end taxes.

If you find yourself burdened with back taxes, our firm is here to assist. Call us at 813-685-8400 for a free consultation. Our tax resolution specialists are adept at navigating the complexities of the IRS, offering you peace of mind.

#1 - Cashing in Your Retirement Plan:

Cashing in a retirement plan prematurely can incur substantial taxes and penalties. Taking cash from a 401(k) instead of rolling it over into an IRA result in tax obligations on the withdrawn amount, along with a 10 percent penalty. This move may potentially lead to losing a sizable portion of your hard-earned retirement savings.

#2 - Working as a Freelancer:

While freelancing provides independence, it can trigger tax complexities. Freelancers and self-employed individuals are subject to the self-employment tax, encompassing both employer and employee shares of Medicare and Social Security tax. Proper planning and setting aside funds for this tax obligation are essential.

#3 - Failing to Take Your RMD:

Mandatory minimum distributions (RMDs) are required from retirement accounts once you turn 70. Failing to adhere to these mandatory withdrawals can result in substantial tax penalties, making it crucial to fulfill RMD requirements to avoid financial setbacks.

#4 - Skipping Your IRA Contribution:

Skipping an annual IRA contribution can impact on your tax bill. Before deciding to forgo your IRA contribution, assess the potential effects on your overall tax liability, considering the long-term financial implications.

#5 - Paying Off the Mortgage:

While paying off your mortgage provides financial freedom, it can affect your taxes. Mortgage interest deductions, available when itemizing deductions, may be lost, potentially increasing your tax liability. Although not the sole reason to retain a mortgage, it's an important factor to consider.

If you're facing outstanding tax debt, particularly if you owe more than $10,000 to the IRS or state, contact our firm. We specialize in helping individuals find tax relief, sometimes settling their tax debt for a fraction of the amount owed.

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