Paying Taxes

Click Here for your “Paying Taxes” worksheet

 
 
Polaris Advisors, the website, the worksheets and the seminars are not endorsed, reviewed or approved by either Gillette or Procter and Gamble.  Polaris Advisors is an independent Financial Planning Firm, and prospective clients must make their own assessments of the accuracy and validity of the material presented.
 
In the years we have been preparing taxes for Gillette Retirees, we have learned this. 
People hate paying estimated taxes and invariably miss the payments or fail to
record them.  So, their tax returns have errors and/or they end up with tax penalties.
 
When you make the transition from work to retirement, you go from a paycheck with withholding to various forms of income.  These include Social Security, Pensions, dividends and withdrawals from Rollover IRAs or the Savings Plan.  What many don’t address is that most of these sources of income can be set up for withholding.  Doing this correctly can usually eliminate the need for Estimated Tax filings in April, June, September and January, and keep you from getting that dreaded correspondence from the IRS or the DOR.
 
We advise withholding be applied pro-ratably across each source of income, so each source pays for its own tax.  If a percentage is used, then changes in these income streams create corresponding changes in withholding, and you stay out of trouble with the tax authorities.  For example, if you double the amount to withdraw from your Rollover IRA, you will double the amount you withhold for State and Federal Tax, also.
 
How to figure it out?  The attached worksheet will help.  It’s a simple spreadsheet that determines your average tax rate now, and applies this rate to each source of income you have after you retire.  There’s a little adjusting, because Social Security won’t withhold for State Income Tax, only Federal, and dividends and interest are difficult to have withheld.  But the result should be pretty close.
 
During the transition years between early retirement and age 65, the sources will change quite a bit.  IE; Severance and Unemployment give way to Social Security, Medicare and the downward offset of your Pension. But, if you do this analysis each time you file your taxes, you can stay on target, avoid Estimates and not give what amount to a free loan to the authorities by being over-withheld.
 
So, download your worksheet and take a look.  If you have questions, or would like to attend one of our workshops on this and the other “12 Steps to Retirement” please don’t hesitate to give us a call or contact us by email.  We’ll be glad to hear form you.
 
 
 
 
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