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Progeny Law Firm

Baton Rouge, Louisiana Estate Planning Attorney

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5 Things That Can Unexpectedly Raise Your Taxes

July 20, 2021 by Myrna Arroyo

5 Things That Can Unexpectedly Raise Your Taxes

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. Our tax resolution specialists can navigate the IRS maze so that you have nothing to worry about. Just call our office at (225) 465-1090 or click here to schedule online.

#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. We help people find tax relief and sometimes settle their tax debt for a fraction of what’s owed. Just use the button below to schedule a call with us.

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Myrna Arroyo
Myrna Arroyo
Estate Planning Attorney at Progeny Law Firm
Myrna Arroyo graduated from Tulane University with an MBA/JD in May of 1995. Before starting her own law practice she practiced at several large law firms and has over 20 years of experience as a lawyer and entrepreneur. She currently focuses her law practice on helping families and business owners with estate planning, tax and Medicaid planning.
Myrna Arroyo
Latest posts by Myrna Arroyo (see all)
  • The IRS’ Annual Warning: The 2023 Dirty Dozen - May 23, 2023
  • The Joy in Joint Trusts - May 16, 2023
  • How Tax and Non-Tax Considerations Impact Estate Planning – Part II - May 9, 2023

Filed Under: Taxes

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Progeny Law Firm
4459 Bluebonnet Blvd
Bldg 1 Ste A,
Baton Rouge, LA 70809
Pakistan
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