If you owed a lot of tax for the year 2012 or you expect you will be short this year be sure to fine-tune your estimated tax payments and withholding for 2013. Due to the numerous tax law changes for 2013 that may potentially affect you (3.8% medicare tax .9% medicare tax increase in tax bracket reduction of itemized deductions and limitation in exemptions) now is a good time to review your 2013 tax situation.
Estimated tax payments need to be adjusted now to make sure you are not charged with an estimated tax penalty. You need not prepay all the tax you might owe for 2013 just an amount equal to 90% of the 2013 tax or 100% of your 2012 tax (110% if your AGI exceeded $150000 in 2012). Doing so avoids the underpayment penalty even if you end up owing the IRS a lot of tax.
In addition to starting or increasing your estimated tax payments for 2013 another option is to increase your withholding. Increasing your withholding now can reduce your 2013 tax liability and your potential estimated tax penalty. If you wait until year end to adjust your withholding you may not have enough salary to compensate for the necessary increase in withholding.
Lindemeyer CPA is here to help provide council when it comes to preparing for and handling your taxes. Visit our website to learn more about our firm and contact us for a consultation.