5 Things That Can Unexpectedly Raise Your Taxes

By
Industry Observer with TriState Tax Resolution LLC

 

 

Proper tax planning is a year-round proposition. You cannot afford to wait until April to start planning your taxes and assessing your tax liability.

 

Knowing which factors can raise your taxes is one of the best ways to keep more money in your pocket. These five factors can unexpectedly raise your taxes owed at the end of the year.

 

Note: If you owe back taxes, our firm can help negotiate with the IRS and potentially settle your tax debt. Call us today, at (718) 841-7317.  Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about.

 

#1 - Cashing in Your Retirement Plan

There are many reasons not to cash in your retirement plan early, but the tax penalty is one of the biggest ones. If you take the proceeds from your 401(k) plan in cash instead of rolling it over into an IRA, you will have to pay taxes on the money you withdraw. Even worse, you will be subject to a 10 percent penalty. By the time you are done, you could lose up to half your hard-earned retirement plan to taxes and penalties.

 

#2 - Working as a Freelancer

Working for yourself is great, but it can trigger a tax nightmare. Freelancers and other self-employed workers are subject to the self-employment tax, which represents the combined employer and employee share of the Medicare and Social Security tax. That tax hit can be substantial, especially if you plan to fail for it and set money aside.

 

#3 - Failing to Take Your RMD

You cannot keep retirement funds in your account indefinitely. You are required to start pulling money from your IRA and workplace retirement plans when you turn 70. If you fail to make that required minimum distribution (RMD), you could face a hefty tax penalty. The penalty for failing to take the RMD can be substantial.

 

#4 - Skipping Your IRA Contribution

If you are used to making an annual IRA contribution, skipping that contribution could cost you money. Before you skip your IRA contribution, take the time to run the numbers and see how the decision will affect your tax bill.

 

#5 - Paying Off the Mortgage

Paying off the house can be very freeing, but it can also raise your taxes. Mortgage interest is deductible if you itemize your deductions, and losing that deduction could leave you owing more to the IRS. That may not be a reason to keep a mortgage, but it can be an important consideration.

 

Owe Back Taxes?

If you know you’ll have outstanding tax debt and owe more than $10k to the IRS or state but can’t pay in full, contact our firm today at (718) 841-7317. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed.

Comments (8)

Shayne Stone
HomeSmart - Fulshear, TX
"Your Rock Solid Choice Realtor"

Great information!  Thanks for sharing and have a wonderful day!

Jul 18, 2021 05:07 PM
Karen Climer
Demetree School of Real Estate - Orlando, FL
Teaching people to pass the real estate exam

Great information. Everyone needs a good tax advisor.  

Jul 18, 2021 05:58 PM
Kat Palmiotti
406-270-3667, kat@thehousekat.com, Broker/REALTOR® - Kalispell, MT
Helping your Montana dreams take root

This is good information. I've always objected to the idea of RMD. We should be able to leave our funds wherever they are working for us.

Nov 13, 2021 04:55 AM
Allan Rolnick

The government does not want to leave the money untaxed for too long a period of time...


 

Nov 16, 2021 07:04 AM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Allan - these are certainly great reminders.  I am aware of them and have a strategy for each.

Nov 13, 2021 06:05 AM
John Juarez
The Medford Real Estate Team - Fremont, CA
ePRO, SRES, GRI, PMN

Thank you for the informaiton, Allan. I am glad that I have a personal financial advisor who also helps me with tax planning. 

Nov 13, 2021 08:37 AM
Anna Banana Kruchten CRS, Phoenix Broker
HomeSmart Real Estate BR030809000 - Phoenix, AZ
602-380-4886

Hi Allan really good tax tips.  I was aware of 4 of them but I didn't know people need to start drawing money out of retirement funds at age 70. For some reason I thought it was 72 now.  Thankfully we have an excellent CPA that has helped us manage our taxes owed for years.

Nov 13, 2021 08:58 AM
Jeff Dowler, CRS
eXp Realty of California, Inc. - Carlsbad, CA
The Southern California Relocation Dude

Thanks for the information  - always good to know and think about this stuff. Glad I have a great CPA.

Nov 13, 2021 12:58 PM
Dorie Dillard Austin TX
Coldwell Banker Realty ~ 512.750.6899 - Austin, TX
NW Austin ~ Canyon Creek and Spicewood/Balcones

Hi Allan Rolnick ,

A great post full of good information. I'm glad Carol Williams featured it in her series of Second Chance Saturdays! I firmly believe in doing what I do best and hiring the rest.. my CPA is on top of it!

Nov 13, 2021 05:05 PM
Allan Rolnick

Great!!!

Nov 16, 2021 06:54 AM