These brief tips cover why taxpayers may want to increase withholding to avoid an underpayment penalty, whether businesses can defer taxes on advance payments, and how to make the most of year-end gifts.

Increase withholding to avoid underpayment penalty

Do you file your tax returns as a sole proprietor, partner, S corporation shareholder, self-employed individual or some combination of these? If so, and if you expect to owe $1,000 or more in taxes, you must make quarterly estimated tax payments. If you’re behind on these payments, consider catching up through increased withholding between now and the end of the year. You can withhold extra taxes from your own salary or year-end bonus or from your spouse’s salary or bonus if you file a joint return.

Why not simply make larger estimated tax payments later in the year? Because the IRS will impose penalties if you underpaid in the first part of the year. In contrast, amounts you withhold from your paychecks (or your spouse’s paychecks) are treated as if they were paid ratably over the course of the year, regardless of when they’re actually paid.

Can your business defer taxes on advance payments?

Accrual-basis businesses that receive advance payments this year for goods or services provided next year may have an opportunity to defer this revenue. Deferral may be available if your business receives advance payments for the use of intellectual property or software, certain guaranty and warranty contracts, subscriptions, memberships in organizations, or hotel facilities or other property in connection with providing services.

© 2016

Icon for Thompson Greenspon
Thompson Greenspon

This blog post was provided by Thompson Greenspon. If you have questions or concerns regarding this content, please contact us.