Pay Yourself, Not the IRS
Are you expecting a big refund on your 2014 income taxes? If so, you gave the IRS an interest-free loan last year. You should take some time now to recalculate your withholding or estimated payments to make sure you don’t underwithhold or overwithhold in 2015.
The tax laws require that you prepay at least 90% of the income taxes you owe for the year, through withholding from income or timely estimated payments. A safe-harbor provision allows taxpayers to pay in the lesser of 90% of the current year’s taxes or 100% of the prior year’s taxes (110% if the prior year’s adjusted gross income exceeded $150,000).
From a financial standpoint, it’s much smarter to owe the IRS a small amount in April than to receive a large refund. But if you’re a taxpayer who likes getting a big refund, you may want to consider another option: reduce your withholding and pay yourself the difference. Have your tax adviser estimate how much you’ll owe in taxes for 2015; adjust your withholding and/or estimated payments so you pay the minimum necessary to avoid the underwithholding penalty. Open a savings account into which you put the difference between what you would have paid the IRS throughout the year. Then, in April of 2016, withdraw the savings and pretend it’s a refund from the IRS.
Director of Institutional Advancement
The materials contained on this website are intended only to show some ways by which you can make a charitable gift or bequest and thereby minimize federal tax liabilities, as authorized by the Internal Revenue Code. All examples are of a general nature only and should not be applied to your specific situation without first consulting your attorney or other advisers.