Personal Finance Essentials
Tax Planning Throughout the Year
That Big Tax Refund Isn’t Good News
It Means You’ve Been Giving the Government a Free Loan All Year
Effective tax management is not something that happens only in April. The decisions you make throughout the year – how you invest, how you structure your income and when you file – can all affect what you ultimately owe.
Estimated Quarterly Tax Payments
If you are self-employed, own a business or receive significant income not subject to withholding – such as investment income, rental income or freelance earnings – you are generally required to make estimated quarterly tax payments to the IRS. Failing to do so can result in underpayment penalties, even if you pay your full tax bill by April 15. Payments are due four times a year: April 15, June 15, September 15 and January 15 of the following year.
Stop Giving the Government an Interest-Free Loan
If you consistently receive a large tax refund, you are overpaying your taxes throughout the year and giving the government an interest-free loan of your own money. That money could have been in your pocket – or invested – all year long.
The fix is to adjust your withholding with your employer by updating your W‑4 form. By claiming the correct number of allowances, you can reduce the amount withheld from each paycheck and have that money available throughout the year. Aim to get as close to zero as possible at filing time – neither a large refund nor a large payment due.
Tax Filing Timing
There is rarely a reason to file your tax return in January or early February, even if you have all your documents. Financial institutions have until late January to mail Forms 1099, and corrections are common. Filing too early can mean filing before all income documents have arrived, which may require an amended return later.
Waiting until at least March gives you time to confirm that all your documents are accurate and complete. If you need additional time beyond April 15, you can file for an extension, which gives you until October 15 to file. Note that any taxes owed are still due by April 15, regardless of whether you file an extension.