November 2024 – Tax Projections
Tax Projections
OVERVIEW
As we approach the end of the year, now is a great time to discuss tax projections. Tax projections can be a powerful tool for managing your tax position, planning for balances due in April, planning for possible payments if you extend your tax return, and proactively avoiding unexpected surprises when you file. While tax projections can be helpful in these ways, there are instances where they may not be needed. Let’s look at what a tax projection is, when it might be right for you, and situations where it may not add much value.
WHAT IS A TAX PROJECTION
A tax projection is an estimate of your tax position based on your anticipated personal income and any applicable tax deductions. A tax projection also includes calculations for your business income, expenses, and deductions for the upcoming year or tax period. The goal is to provide a comprehensive estimate for your tax position for your planning.
WHEN TO CONSIDER A PROJECTION
There are several situations where a tax projection can be particularly helpful:
– Year-End Tax Planning: Whether you’re looking to manage your taxable income from your business or sell some investments before year end, a projection can help you plan for the tax effects or potentially guide your decisions before year end.
– Significant Income Changes: If your business made significantly more (or less) this year, your wages substantially increased (or decreased), or you sold property/investments, a tax projection helps anticipate the impact on your tax rate and any increase or decrease in payments we may recommend.
– Avoiding Surprises at Tax Time: Because tax projections typically estimate what you will owe, you can adjust your savings or withholdings to avoid last-minute scrambling at filing time.
If you are extending your 2024 tax return(s) and you believe any of the above apply to you, we do recommend a projection to assist in paying the correct balances due in April, if needed, to avoid penalties and interest if you have balances due. If you are planning to file on time but anticipate significant changes to your taxable income, we also recommend a projection to assist you in planning.
WHEN A PROJECTION MAY NOT MAKE SENSE
On the other hand, there are times when a tax projection may not be essential:
– You Plan to File on Time: If you plan to file on time and not extend, it may not make sense for you to do a projection if you have paid all your estimates and you plan to pay any balances due at filing time in April.
– Minimal Income Fluctuations: If you consistently have a steady, predictable income year over year, projections may not reveal much new information.
– No Significant Taxable Events: If your income or expenses change only slightly from the prior year or in ways that don’t significantly impact taxes, a full projection might be more than you need.
FINAL THOUGHTS
Tax projections can be a useful tool for estimating your tax position, planning for any balances due, and avoiding unexpected surprises when you file. If you plan to file on time and have paid all estimates and your income has not changed significantly from the prior year, a projection may not be needed.
If you are unsure whether a tax projection would benefit you this year, we are here to help assess your situation and provide guidance. Feel free to reach out to discuss whether a tax projection could be beneficial for you.