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Investing involves risk and no situation is the same. This is in no way intended as a personal recommendation and investment decisions are solely those of the reader.

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What to Do If You Receive a Tax Bill Instead of a Refund

Get Smart with Your Assets

SmartAsset is a personal finance technology company that features a financial advisor matching service. Financial Advisors who appear on SmartAsset are from companies with which SmartAsset receives compensation. SmartAsset takes into consideration wealth and location to determine how to match users with advisors. SmartAsset doesn't include the entire universe of Financial Advisors.

Under the Tax Cuts and Jobs Act, many tax credits or deductions were either capped at a certain amount or eliminated altogether.

If you’re worried about winding up with a large tax bill instead of your usual refund, it’s time to examine your current tax strategy and get professional advice from a financial advisor with tax expertise.

A 2019 Northwestern Mutual study found that U.S. adults who work with a financial advisor report “substantially greater financial security, confidence and clarity than those who go it alone.”

The value of working with a financial advisor varies by person and advisors are legally prohibited from promising returns, but research suggests average additional investment returns can range from 1.5% to 4% more each year.

SmartAsset’s new tool makes it easy to find the right financial advisor near you in just a few minutes. Our exclusive, no-cost tool matches you with up to three local fiduciary financial advisors that have passed a rigorous screening process. We confirm each is registered with the U.S. Securities and Exchange Commission (SEC) or the appropriate state regulator, possess the proper licenses and have no pending or valid regulatory disclosures within the past 10 years.

The IRS issues stiff penalties for individuals who underpay on their taxes. Here’s how to adjust your taxes for tax year 2020 so you can avoid this problem.

1. Change Your Withholding

How much money you have withheld from each paycheck will determine how much you owe in taxes or receive as a tax refund. Have more money withheld from each paycheck on your W-4 to avoid having to pay a large tax bill when you file your taxes. Consult with a company HR representative or a financial advisor to determine the right amount to withhold.

2. Consider Tax Owed on Side Income

If you have a side gig and receive extra income not subject to withholding, make sure you set aside some of the money for the tax you’ll owe on it. If you sell a house or any investments, it will count as additional taxable income, increasing your tax bill.

3. Increase Your 401(k) Contributions

Every dollar you save in a tax-deferred retirement account is deducted from your annual taxable income. Since you’ll be paying tax as you withdraw from the account in retirement, you won’t pay tax on the money now. It’s a win-win scenario since the money you withhold from your paycheck will also grow with compound interest until it is withdrawn.

4. Make Charitable Donations

Tax deductible charitable contributions are accepted all year until Dec. 31. Make sure you collect all necessary documentation, including any itemized receipts or bank statements that indicate your contribution.

Additionally, if you donate any property valued over $5,000, you’ll need to submit a written appraisal to qualify for the deduction.

5. Start Planning for Next Year Right Now

If you’re anticipating major life changes this year, like selling a home, moving, receiving retirement account distributions or accepting Social Security, planning your strategy ahead of time with a financial advisor can save you a steep bill come next year’s tax season.

Many financial advisors are experts in tax law, as well as financial planning, and can guide you through the best strategy for filing your taxes and how to invest your refund, if applicable. Alternatively, an advisor can also assist you in planning a budget to settle any tax bills.

Other Topics Smart Investors Discuss With Financial Advisors

Do you know enough about financial management to take care of all of your investing on your own? Or do you need help from a seasoned expert? That question comes up for millions of Americans each year.

If any of these describe you, you could benefit from professional financial advice:

You’re retiring soon
You manage your own investments
You have children
You inherited money
You’re divorcing
You want to build wealth

As previously mentioned, research suggests that average additional investment returns from working with a financial advisor can range from 1.5% to 4% each year.

Chances are, there are several highly qualified financial advisors in your town. However, it can seem daunting to choose one.

Our no-cost tool makes it easy to find the right financial advisor for you. Now you can get matched with up to three local fiduciary investment advisors that have been rigorously screened for regulatory disclosures and to confirm their licenses. The entire matching process takes just a few minutes.

Follow These Steps to Get Matched With the Right Advisor for You

1. Simply enter your ZIP code below.

2. After you enter your ZIP code and answer questions about your financial goals, you can compare up to three top advisors local to you and decide which to work with.

3. Enjoy a better financial future!

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