Tax Strategies & Credits

Why You Should Talk to a Tax Professional Before Your Holiday Shopping Spree

Why You Should Talk to a Tax Professional Before Your Holiday Shopping Spree

The holiday season is upon us — and for many, this means it's time to shop for the perfect gifts. Before you start that holiday shopping spree, however, you may want to consult with your tax professional to make sure you won't be in for any unpleasant surprises come April.

Are You Making More This Year?

Because of recent changes to tax reform, many people are bringing in extra income. In fact, the average taxpayer is now seeing about $200 more per month. This extra cash may make spending a little more on holiday gifts tempting — but be careful.

Have You Changed Your Withholding?

If you're bringing in more money but haven't yet updated your tax withholding, you could end up owing more money come tax time — money you may not have budgeted for when you decided to splurge on your holiday shopping. Depending on how much more money you made this year, you could be bumped up into the next tax bracket, which could mean owing more in taxes.

If you have drastically underpaid your taxes throughout the year, not only will you be facing a hefty tax bill come April, but you could also end up with underpayment penalties, and accrued interest on top of it.

How a Tax Professional Can Help

The good news is that you can avoid unwanted surprises come tax time by simply meeting with a tax professional before you do your holiday shopping. In most cases, you'll just need to bring a copy of your most recent pay stub. This will help your tax professional determine not only how much you've made this year, but how you've paid into federal, state, and other applicable taxes.

From there, your tax professional will be able to determine if you need to change your withholding or if you'll end up owing come April. This will help you head into your holiday shopping with a better idea of where you stand financially.

Underpayment penalties are figured on a quarterly basis; so making last-minute estimated payment payments only help to reduce the penalty for last quarter.  On the other hand, withholding is treated as paid ratably throughout the year and additional last-minute withholding can help reduce the penalties for all four quarters. 

The bad news? It may be too late to change your withholding for this year for most taxpayers since it is difficult to get an immediate change in large companies. However, if you work for a small company or are the owner, you may still have time to dedicate a large portion of year-end payroll to tax withholding. Without a last minute substantial increase in withholding, you may be on-the-hook for underpayment penalties and interest.

Still, you should update your withholding through your employer so that you won't find yourself in the same situation next year. This can be done by requesting to fill out a new W-4, most likely through your employer's human resources department.

For many shoppers, more income throughout the year means spending a little more on gifts for loved ones this holiday season. And that's perfectly fine! Just make sure you know where you stand come tax time so you can shop with confidence. This is just one of many financial situations that a tax professional can help you with any time of year.

Jon Osborn, EA writes for TaxBuzz, a tax news and advice website. Reach his office at [email protected].   

share this post
Search for matches...
Steward Financial

Steward Financial

Jon Osborn is a tax preparer based in San Dimas, California. His company, Steward Financial Services, offers a broad range of tax preparation, accounting and business consulting for small businesses. He loves to work with clients who are looking for answers to complex tax and business planning issues. He has owned several small businesses and worked with over one hundred small business owners. He helps his individual and business tax clients find the best ways to spend their money in order to minimize IRS tax. Small businesses looking to grow, sell or just increase cash flow are one of Jon's specialties.

Steward Financial Services
38 reviews

California

Recommended Professionals

In the face of economic uncertainty, TaxBuzz is the industry's most up-to-date tax information.

Join 60,000 who get our weekly newsletter. No spam.

We know tax and accounting issues are complicated.

Do you have additional questions on this topic for this author?

Related Posts

Latest Posts