This is a sponsored post written by me on behalf of Block Advisors. All opinions are 100% mine.
Tax time can be both stressful and annoying. With the time that it takes to prepare and file taxes, most people lose hours or even days through the process.
Others spend even more time because they realize they don’t have the proper documentation and have to chase it down.
Stress levels can hit all-time highs during tax time as people find out that they didn’t plan appropriately and now have a huge tax bill.
Stress isn’t the only reason you should consider planning for taxes year-round. There are many other benefits that come with planning for taxes year-round. Here’s five of them.
1) Avoid Owing a Huge Sum of Money
A few years ago my wife had various part-time jobs throughout the year. Unfortunately for us her employers were taking out almost nothing for her taxes. That means we should have been setting aside money on our own to account for this income. We hadn’t been.
To make matters worse this was the first year I had made a considerable side income from blogging and other side hustles. I paid in almost nothing in quarterly taxes (see #3 below). This was a recipe for the perfect storm and we ended up owing about $8,000 in taxes.
There were tears.
Ever since that year we spend time reviewing our taxes and making sure that we are setting aside enough. It’s so easy to just think about taxes once a year, but the risk of owing a huge sum of money goes up exponentially the less time you spend on taxes throughout the year.
2) Avoid A Huge Tax Return
While getting a huge tax return is much better than owing a huge amount of money to the IRS, it’s still not an ideal position to be in.
Getting a huge tax return means that you had a considerable amount of money going to the IRS that earned 0% interest. This money could have been put in tax-advantaged retirement accounts, stock investments, or be used to pay down debt. It may not seem like a big missed opportunity, but the bigger your tax return the bigger an opportunity you missed to have that money go to work for you.
My wife and I experienced getting a huge tax return the year after owing a ton of money. Not only did we miss out on the opportunity of investing the money or paying down debt throughout the year, the IRS actually lost some of our money and it took months to recover it.
3) You May Be Required to Make Quarterly Estimated Tax Payments
Do you have a side hustle or small business? Or do you freelance? Even if you only make a little money off of these activities you still are required to make quarterly estimated taxes.
Quarterly estimated taxes are a way for the government to collect your “estimated” taxes throughout the year. You want this payment to be as accurate as possible and not drastically under or over what you ultimately owe.
One option for people who do not enjoy expense tracking and tax planning for their small business or side hustle is Block Advisors. Block Advisors can provide back-end needs such as bookkeeping and more to serve all your tax and accounting needs. This gives you more time to focus on your clients and building your business.
4) Easier to Take Advantage of Tax Breaks
When you plan for taxes throughout the year you are better able to take advantage of tax breaks. For example, if you contribute to your HSA, IRA, and 401(k) throughout the year you are more likely to contribute more than if you make lump sum payments at year-end.
Yes it’s true that you can back-load your contributions to these tax-advantaged accounts, but let’s be realistic: how many people actually have a ton of cash set aside to make these contributions at year-end? I would guess not many.
Slowly contributing to tax-advantaged accounts and planning accordingly for tax breaks will make it more likely that you get the full tax benefit at year-end.
5) Takes the Stress out of Tax Time
Like I said in the beginning of this post, tax time can be stressful. The last thing you want to do is find out you owe a big tax bill, or realize that you have to spend hours (or days) reconciling financials from the past year. Even financials for a very small business can take hours to reconcile if you haven’t been keeping good records throughout the year.
When you prepare for taxes year-round you don’t have to chase down files at tax time. You also can make adjustments to how much you are paying in for taxes throughout the year, allowing you to be confident that what you owe or what you get back from taxes is minimal.
The Solution to Year-Round Tax Planning: Block Advisors
Many of you reading this may agree that planning for taxes year-round is a good approach, but how do you actually plan for taxes year-round? What do you actually do?
One of the best ways to plan year-round is to talk to a tax professional who specializes in tax planning. Block Advisors is a great place to start.
Block Advisors deliver specialized and personal tax planning and preparation. They are available year-round to answer any questions and help you make sure you are planning appropriately for taxes. You can expect them to deliver quality results and provide ongoing support.
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If you want to avoid a huge tax bill and the stress that comes with tax season, you need to plan year-round. Planning year-round also allows you to take full advantage of tax breaks. For better or for worse, taxes require strategic planning and more attention than a once-a-year review.
Consider checking out Block Advisors to see if their services line up with your goals.
What do you do to prepare for taxes year-round? If you don’t plan year-round, is this something you think you would benefit from starting?
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Ugh, we just finally finished everything up for our taxes last week and handed them off to our CPA. If we didn’t stay on top of them throughout the year it’d take so much more time to take care of at the end of the year. I use a number of spreadsheets to stay on top of things though we may be looking to hire a bookkeeper this year to better manage it.
I’m an S-corp, so I have to plan out my taxes monthly. I make sure to transfer them into a separate business account, then I write checks and fill out documents (1040-ES, 941 for FICA and state tax ES forms) four times a year. Then have to get my business taxes done by the middle of March, which are still only partially organized for my CPA to review, and then individual returns in April.
I’m generally fine with a return of $300 or less. Anything above that annoys me since that’d be money in our pocket during the year. I know people say they wouldn’t have missed $X throughout the year and it would’ve just gotten spent. But we have a zero-sum budget, with anything remaining going into savings. So yeah, it absolutely could’ve benefited us. Grumble grumble.
DC, thanks for the rec. This year will be my first time filing business taxes. I was planning on doing it myself but will certainly check out Block Advisors now
Jaime Donovan Yeah it was a terrible experience! We learned from it, though, and we are more on top of our taxes than we were in the past. They become so much more complicated once you have side income.
FrugalRules Unfortunately taxes and bookkeeping take away from most business owner’s primary purpose: running their business! It’s always nice when your business gets big enough that you can justify outsourcing taxes.
AbigailP I also don’t like getting a big tax return, but it’s partially due to my terrible experience last year where i had to fight to get $2,500 of my return! If you have a big return you technically could have shoved it into a tax advantaged savings account, so I agree that it’s a loss to get too big of a return.
George @ Properly Your welcome! I hope that you have a good experience with Block Advisors and best of luck with your first year filing your business taxes. Taxes certainly become more complicated when you bring business income into the equation.
I remember my first year doing freelance work. It was so confusing! I was young and luckily, one of the guys I worked with pulled me aside and explained to me about needing to put aside money (25-30%) for taxes.
It was SUPER helpful and a reliever!
colinashby I think first-time freelancers have it the worst. It’s not normal to have to set aside money for taxes, but you definitely need to be diligent about it when you freelance!
DC @ Young Adult Money colinashby It also comes as a shock. While the amount you need to set aside depends on different factors, many are shocked at having to put aside 30% of their earnings.
They don’t realize all the tax stuff and expenses that come along with freelance/side work. Getting a tax advisor is kind of a must!
colinashby DC @ Young Adult Money Definitely, and actually in some states (Minnesota for sure) you really are paying over 40% in taxes, even if you are in a relatively low tax bracket. You don’t have an employer paying in part of your social security and medicare taxes – you foot the whole bill!
I agree with all of these points, and I’m paying the price now for not preparing during the year because it’s taking me sooooo long to get my taxes done. I’m hoping I can get about 90% of the process finished this weekend and go from there.
Chonce I will admit that I also put off some of the pre-work until tax time, but it’s all stuff that I could realistically do each month/quarter. Let’s see how I do in 2016 ;)