Preventing A High California Tax Bill
To prevent unexpectedly high tax bills in the future, carefully manage your income tax withholdings and estimated payments. Learn what the current tax rates are, withhold sufficient amounts from your paycheck or pension payment. If you are self-employed, your estimated tax payment should be increased.
If you live in the state of California or any of the other 42 states that levy an income tax, and you earn an income in one of those states, you will owe state income tax. Always check the tax law in every state you receive earnings from or have lived in to avoid tax penalties at the state level.
Meet The Deadline For The Extension
The IRS must receive Form 4868 on or before the tax filing deadline, which is usually April 15 unless that day falls on a weekend or holiday. In this case, it would be the next business day.
The IRS will charge a late-filing penalty, a late-payment penalty, and interest on any unpaid balance you owe if you don’t file your return or an extension on time and if you also fail to pay on time. But you’ll at least avoid the late-filing penaltywhich is a hefty 5% of the taxes you owe for every month your return is lateif you file an extension by the April due date, then file your return by the extended deadline in October.
This penalty increases to $435 or 100% of the taxes you owe, whichever is less, if you’re 60 days late or more. The penalty applies to all returns due from January 1, 2020, onward.
How Do Tax Brackets Work
Once youâve calculated your taxable income, itâs time to look at the IRSâs tax rate scheduleâa fancy term for âbig list of tax system bracketsââfor the year youâre doing your taxes for.
Letâs take the IRS tax brackets for individual single filers in 2022:
Unless you made $10,275 or less in taxable income in 2022, itâs likely you fall into at least two brackets. This means different parts of your income is taxed at a different rate.
For example, letâs say that your taxable income ends up being $20,000. That means youâll fall into two different tax brackets and get taxed at two different rates:
the $0 – $10,275 bracket, which taxes you at 10%
the $19,276 – $41,775 bracket, which taxes you at 12%
So youâll pay two different tax rates: 10% on the first $10,275 âchunkâ of your income, and 12% on every dollar you made above $10,275.
In equation form, weâd write this out as:
Total tax = +
Total tax = $1027.50 + $1,167.00
Total tax bill = $2,194.50
We call the highest tax rate that you pay your . In this example, your marginal tax rate is 12%.
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Who Do You Owe State Taxes
Now that you know the answer to the question, âWhy do I owe state taxes this year?â you might be wondering, âWhy do I owe the state money on my taxes?â The answer is quite simple. Your state uses those taxes to fund everything from school districts to the police. While seven states may not levy state income tax, they still gain this money in other ways, such as sales taxes.
Take Note: If you performed work in multiple states, you may not only owe state taxes to your state but to another state too.
How Will I Know Why I Owe Taxes
The easiest way to keep track of your tax refund or bill and see the itemized reasons why your tax refund might have gone up or down is through a financial professional or service company.
This service could either be offered through an online filing system or with an in-person chat with a tax professional who can go through your taxes with you.
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Tips For Financial Planning
- Consider talking to a financial advisor about the best ways to manage your state and federal tax filing to avoid a large tax bill. If you dont have a financial advisor yet, finding one doesnt have to be complicated. SmartAssets financial advisor matching tool makes it easy to find professional advisors in your local area in minutes. Youll just need to answer a few brief questions to get your personalized recommendations. If youre ready, get started now.
Use SmartAssets tax return calculator to see how your income, withholdings, deductions and credits impact your tax refund or balance due amount.
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What Can I Do If I Cant Pay My Federal Taxes
If you owe taxes and cant pay them in full, it is important to pay what you can and make a plan. Consider using a payment plan, but note that unless you pay the amount owed in full, you will be charged interest and penalties.
To learn more about your different payment options based on your financial situation, read What to Do if I Owe Taxes but Cant Pay Them.
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Why Did My Federal Withholding Increase This Month
As you earn income throughout the year, your employer withholds payments toward your year-end tax liability. If these withholding payments vary, it might be because your income fluctuates, you receive commissions in addition to your regular salary or because you modified the number of allowances you claim.
How Do I Avoid Owing Taxes In The Future
Its important to research ways to avoid owing taxes in the future. Here are some ways to get started, so next year you wont have to ask, Why do I owe taxes this year?
- Update your W-4 annually or when anything changes your tax situation.
- File your taxes early to avoid underpayment and other penalties.
- Speak to a CPA and a financial advisor to get the big picture of your finances and make sure youre maximizing your deductions.
- Use the IRS Tax Withholding Estimator to estimate how much youll owe next year.
Following these steps each year can help you make sure youre withholding the correct amount in each of your paychecks so you wont get caught off guard when you file your taxes.
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What Are Some Other Inflation Adjustments I Should Look Out For
We mentioned earlier that the IRSâs tax brackets apply to your taxable income, which is what you get when you apply certain adjustments and deductions to your revenue.
One other way that the IRS helps guard against bracket creep is by adjusting the values of deductions to keep up with inflation. Here are the main ones you should look out for:
The Child And Dependent Care Credit
This credit covers some of the costs associated with caring for a child or dependent with disabilities, including after-school programs, babysitters or daycare, if that care enabled you to work.
The American Rescue Plan made this credit fully refundable in 2021 only. The maximum eligible expense for this credit is $8,000 for one qualifying person and $16,000 for two or more.
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Profits: Half A Billion Refund: $342m
Pharmaceutical and technology companies have long been criticized for leaving profits overseas in countries with little or no corporate taxes, or tax havens like the Cayman Islands, Luxembourg and the Netherlands. The 2017 tax law looked to address those issues by changing the way the profits from foreign subsidiaries are taxed in the United States. As part of the shift to a new tax regime, U.S. corporations were assessed a one-time tax on foreign profits the tax can be paid over eight years.
A number of companies accounted for the foreign profits payment in 2017 and 2018, resulting in significant tax bills.
Under the new law, a companys income is only taxed in the country in which it is earned. The U.S. no longer taxes new foreign profits unless they reach a certain threshold, at which point the income is taxed at 10.5 percent, half that of the U.S. effective rate.
Take for example the giant technology hardware and services company IBM Corp., which consistently ranks among the biggest U.S. companies. The company had revenues of $79.6 billion, more than 60 percent of which came from outside the United States. To that end, IBM made a $2 billion tax payment on future foreign profits in 2018, according to its financial filings. Tax advisor Willens noted IBM elected to make the $2 billion tax payment on future overseas earnings in 2018 instead of down the road in the period it occurs as many companies will do.
Federal Jury Convicts Todd And Julie Chrisley Of Bank Fraud And Tax Evasion
- A verdict was reached in the trial of Todd and Julie Chrisley.
- The jury began deliberations on Friday.
- The couple was convicted of defrauding banks and evading the IRS.
Todd and Julie Chrisley were found guilty on all charges relating to running a years-long conspiracy to defraud banks and hiding their money from the IRS.
An Atlanta federal jury convicted Todd Chrisley of conspiracy to commit bank fraud, bank fraud, conspiracy to defraud the US, and tax fraud.
Their former attorney Peter Tarantino was convicted of conspiracy to defraud the US and willfully filing false tax returns.
The Chrisleys face up to 30 years in prison.
The celebrity couple, who found fame in 2013 when USA Network picked up their reality show “Chrisley Knows Best,” were accused by federal prosecutors of manipulating financial records to make it appear that they were wealthier than they were to apply for more than $30 million in loans, which they spent on a luxury lifestyle they couldn’t afford.
When the banks caught on to them, the Chrisleys filed for bankruptcy, walking away from $20 million in debt. The couple went on to hide money from the IRS with the help of Tarantino, prosecutors said.
Video: Todd & Julie Chrisley Found Guilty on Federal Charges
Jurors began hearing testimony in the case on May 17, with the trial spanning nearly three weeks.
They began deliberating on Friday.
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Protect Yourself From Tax
Tax ID theft occurs when someone steals your personal information to file a tax return using your personal data. Usually, the fraudulent tax filer will use your Social Security number to file your return in order to collect a refund. To protect yourself from tax ID theft, you can obtain a six-digit Identity Protection PIN from the IRS. IP PINs are known only to you and the IRS so the IRS is able to confirm your identity when you file your return. Learn more about how the IP PIN works and how to apply.
How To Pay Estimated Taxes
An electronic payment is the fastest, easiest and most secure way for individuals to make an estimated tax payment. Taxpayers can securely log into their IRS Online Account or use IRS Direct Pay to submit a payment from their checking or savings account. Taxpayers can also pay using a debit, credit card or digital wallet. Taxpayers should note that the payment processor, not the IRS, charges a fee for debit and credit card payments. Both Direct Pay and the pay by debit, credit card or digital wallet options are available online at IRS.gov/payments and through the IRS2Go app.
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Why Do I Owe Taxes This Year Seven Common Reasons
11 Min Read | Mar 29, 2022
Getting to the end of your taxes and realizing you owe lots of money to the IRS is one of the worst feelings in the world. Its right up there with seeing blue lights flashing in your rearview mirror or hearing your boss say, Um, yeah . . . were downsizing.
Your heart sinks. And your first question is: Why? Why do I owe taxes this year?
Well, lets take a look at some common reasons why you might owe so much in taxes. And good news: Well show you how you can avoid having that sinking feeling ever again.
Can I Still Get A Refund If No Federal Taxes Were Withheld
Filing for refunds If you don’t owe tax at the end of the year, but had taxes withheld from paychecks or other paymentsfiling a return may allow you to obtain a tax refund. You may also be eligible for certain refundable tax credits, like the Earned Income Tax Credit , which could generate a refund for you.
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Reasons People Owe Taxes
Why do I owe taxes then might be your reaction to getting slapped by a bill from the IRS instead of the much-anticipated refund.
This happens when the IRS has underestimated how much tax you owe. The balance at the end of tax season ends up being in favor of the government and not you.
This has especially become more common after changes were made to the IRSs withholding tables after the Tax Cuts and Jobs Act was passed in 2018.
Below are a few more reasons why you might owe the government taxes.
How Much Do I Owe In Taxes To The Irs 3 Ways To Find Out
If you owe tax to the IRS but arent sure how much you owe, there are a few ways to find out. You can do that online, over the phone, or through the mail. The most reliable ways are over the phone or by using the online tool offered by the IRS since mail you receive from the IRS may not contain total balances for all years or mail could have been lost. Here are the details.
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Back Up What Exactly Is Gross Income
Its all the money youve made in the tax year. For most people, that mainly includes earned income from your salary, wages, tips or bonuses. It also includes unearned income, like dividends and accrued interest, as well as any gambling winnings. It does not include tax-exempt income, such as child support payments, most alimony payments, workers comp, and more.
Gross income should not be confused with your adjusted gross income or your taxable income. You can determine your AGI by taking your gross income and subtracting certain deductions, including contributions to a traditional IRA, 401 and other qualified retirement plans, interest paid on student loans and contributions to a health savings account. Taxable income is your AGI minus your standard deduction or any itemized deductions you claim.
So if my gross income falls below those minimums, I dont have to file a tax return? Correct. But it might be a good idea to file anyway. Thats because you may qualify for certain tax credits and get a little extra cash from Uncle Sam, even if you owe nothing.
If You Cannot Pay In Full
If you are not able to pay the full amount:
- file on time to avoid paying a late-filing penalty
- make a partial payment to reduce the amount of interest you need to pay on unpaid amounts
You can set up a payment arrangement to give yourself more time and flexibility to repay what you owe. For details: Arrange to pay your personal debt over time
If you are unable to pay, you can discuss your options with the CRA.
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What Happens If You Owe Federal Taxes
Paying a taxpayers full tax balance in a reasonable amount of time will depend on the type of payment offered by the IRS. If you request a extension, there is no charge to you. 0 is the penalty for a penalty of 0. Unpaid balances have been charged 5% per month. It is expected that the IRS will charge interest at a short-term federal rate plus 3% .
The Federal Income Tax
The federal personal income tax that is administered by the Internal Revenue Service is the largest source of revenue for the U.S. federal government. Nearly all working Americans are required to file a tax return with the IRS each year. In addition to this, most people pay taxes throughout the year in the form of payroll taxes that are withheld from their paychecks.
Income taxes in the U.S. are calculated based on tax rates that range from 10% to 37%. Taxpayers can lower their tax burden and the amount of taxes they owe by claiming deductions and credits.
A financial advisor can help you understand how taxes fit into your overall financial goals. Financial advisors can also help with investing and financial plans, including retirement, homeownership, insurance and more, to make sure you are preparing for the future.
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What To Do If You Owe State Taxes
If you owe state taxes this year its important to pay whats owed by the filing deadline. Otherwise, your state tax agency could charge you penalties and interest for each day your outstanding balance goes unpaid. That could end up adding to what you owe. Your options for paying may include writing a check, paying by credit card or taking out a personal loan. If you cant pay your state tax bill in full, its important to get in touch with your state tax agency. Your state may allow you to set up an installment payment plan to pay whats owed, similar to the installment agreements the IRS offers for federal taxes.
If youre debating whether to use a to pay state taxes, be aware of what each option may cost. A credit card that has a high APR could make paying state taxes more expensive. In that case, youd want to look for a card that offers a 0% introductory rate for purchases. Just be sure you understand when the promotional period ends so you know when the regular APR kicks in. Also, consider any processing fees your state tax agency may charge for credit card payments.