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05 November 2015

Making your final tax adjustments for 2015

Photo: Robert FishbeinWith 2015 coming to a close soon, it might be prudent to consider making adjustments to manage your tax liability for early 2016 and beyond.
"Compare your income now with what you anticipated when you set up your 2015 tax withholding or estimated tax payments," suggests Robert Fishbein, a vice president and general counsel in Prudential’s Tax Department. "Is the income what you expected? More? Less? If more, do you need to increase your withholding or your estimated payments to ensure you’re not under withheld and subject to penalties?" 
There’s a withholding safe harbor that allows individuals to pay either 100 percent of their prior-year tax liability or 90 percent of their current year liability to avoid penalties. For those who make more than $150,000, the safe harbor is met when they pay 110 percent of their prior-year tax liability or 90 percent of their current-year liability. 
"If you are making estimated payments, the final payment is due Jan. 15, 2016," Fishbein notes. "Assuming your income for the year is evenly distributed, this should be the fourth of four equal estimated tax payments."
If a person’s income is not evenly distributed over the year, then making estimated tax payments is more complex. "The tax system is a pay-as-you-go regime, and you cannot backload your estimated taxes," Fishbein says. "Failure to make estimated payments mirroring the timing of your income will result in IRS penalty and interest charges, notwithstanding that you have had the appropriate amount withheld for the full year."
Taxpayers with wage income and who have withheld less than they should have for 2015 should consider paying more tax by adjusting withholding immediately, he adds. Because any tax paid through employer withholding will be treated as paid evenly throughout the year, an individual may reduce the amount under withheld in the past by increasing the amount currently withheld.
"If you are under withheld and neither your spouse nor you works for an employer, then pay the under withheld portion as soon as possible," Fishbein warns. "Each day you are under withheld adds to IRS-imposed penalties and interest."
Interested in learning more or want to speak with Rob? Contact Lisa Bennett.
Prudential Financial, its affiliates, and their financial professionals do not render tax or legal advice. Please consult with your tax and legal advisors regarding your personal circumstances.

Lisa M. Bennett
phone: 973-802-2894
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