Most typical causes of a tax bill

There are many reasons why you might owe the Internal Revenue Service (IRS) money at tax time. Some of these reasons are common and predictable, while others may be less obvious. It is important to understand why you might owe taxes so that you can plan ahead and avoid surprises.

Too little withheld from your pay

One of the most common reasons for owing taxes is having too little withheld from your paycheck. Your employer withholds taxes from your paycheck based on the information you provide on your Form W-4. If you do not withhold enough taxes, you may owe money to the IRS at the end of the year.

There are a few reasons why you might have too little withheld from your pay. For example, you may have changed jobs during the year and not updated your Form W-4 with your new employer. You may also have claimed more dependents or tax credits than you are eligible for.

If you think you may not be withholding enough taxes, you can use the IRS’s W-4 Withholding Estimator to calculate how much you should be withholding. You can then submit a new Form W-4 to your employer to update your withholding.

Extra income not subject to withholding

Certain types of income are not subject to withholding, such as capital gains from stock sales, unemployment benefits, and rental income. If you have any of these types of income, you may need to pay estimated taxes to the IRS throughout the year.

To estimate your taxes, you can use the IRS’s Estimated Tax Worksheet. The worksheet will help you calculate how much tax you owe and when you need to pay it.

Self-employment tax

Self-employed individuals are responsible for paying self-employment tax, which covers Social Security and Medicare taxes. Self-employment tax is typically paid quarterly, but you can also choose to pay it annually.

If you are self-employed, you can use the IRS’s Self-Employment Tax Estimator to calculate how much self-employment tax you owe. The estimator will also help you determine when you need to pay your estimated taxes.

Difficulty making quarterly estimated taxes

If you have significant non-wage income, you may be required to make estimated tax payments to the IRS throughout the year. Estimated tax payments are due quarterly, on April 15, June 15, September 15, and January 15 of the following year.

Some people find it difficult to make quarterly estimated tax payments, especially if they have irregular income or unexpected expenses. If you are struggling to make estimated tax payments, you can request an extension from the IRS. You can also pay your estimated taxes in installments.

Changes in your tax return

Life changes can also impact your tax bill. For example, if you have children who grow up and move out, you may no longer be able to claim them as dependents. Or, if you get a new job and have a drastic change in income, you may be bumped into a higher or lower tax bracket.

If you have any life changes that may impact your tax bill, you should review your tax withholding and make adjustments as needed. You may also want to consult with a tax advisor to make sure you are claiming all of the deductions and credits that you are eligible for.

Changes in the tax code

The tax code can change frequently, and these changes can impact your tax bill. For example, the Tax Cuts and Jobs Act of 2017 made significant changes to the tax code, including reducing individual tax rates and eliminating certain deductions.

It is important to stay up-to-date on changes to the tax code so that you can make sure you are complying with the law and minimizing your tax liability.

Additional tips for avoiding a tax bill

• Review your tax return every year. This will help you to identify any changes in your circumstances that may impact your tax liability.
• Make sure you are claiming all of the deductions and credits that you are eligible for. The IRS has a website where you can find information about the different types of deductions and credits that are available.
• Use a tax estimator to calculate your estimated taxes. This will help you to determine how much tax you owe and when you need to pay it.
• If you have significant non-wage income, make estimated tax payments to the IRS throughout the year. This will help you to avoid a large tax bill at the end of the year.

Conclusion

There are many reasons why you might owe taxes to the IRS. By understanding these reasons, you can plan ahead and avoid surprises.