A mid-year tax checkup is an excellent way to ensure you’re on track with your tax planning and financial goals. By reviewing your tax situation in the middle of the year, you can make necessary adjustments, take advantage of tax-saving opportunities, and avoid surprises when tax season arrives. Here’s a guide to conducting a mid-year tax checkup effectively.
Review Your Income
Start by reviewing your income for the first half of the year. Compare it to your income from the same period last year and assess whether you’re on track to meet your annual income projections. Consider all sources of income, including wages, freelance work, investment income, and other earnings.
Adjust Your Withholding
If you’re an employee, check your tax withholding to ensure it aligns with your expected tax liability. Use the IRS Withholding Calculator to determine if you need to adjust your W-4 form. Adjusting your withholding can help you avoid owing a large amount at tax time or receiving an unexpectedly small refund.
Evaluate Your Estimated Tax Payments
Self-employed individuals and those with significant non-wage income should review their estimated tax payments. Ensure that you’ve made the appropriate payments for the first two quarters and adjust your estimates for the remaining quarters if necessary. Use IRS Form 1040-ES to calculate your estimated tax payments and avoid underpayment penalties.
Maximize Retirement Contributions
Check your contributions to retirement accounts such as 401(k)s, IRAs, and SEP-IRAs. Maximize your contributions to take full advantage of tax-deferred growth and potential tax deductions. For 2024, the contribution limits are:
- 401(k): Up to $23,000
- IRA: Up to $6,500
- SEP-IRA: Up to $69,000 or 25% of your net earnings from self-employment
Assess Your Deductions and Credits
Review your deductions and credits to ensure you’re on track to maximize your tax savings. Common deductions and credits to consider include:
- Charitable Contributions: Track your donations to qualified charitable organizations.
- Medical Expenses: Keep records of out-of-pocket medical expenses, as they may be deductible if they exceed 7.5% of your adjusted gross income (AGI).
- Education Credits: If you or your dependents are pursuing higher education, check your eligibility for the American Opportunity Credit and Lifetime Learning Credit.
- Home Office Deduction: If you’re self-employed and use part of your home for business, ensure you’re tracking all relevant expenses for the home office deduction.
Review Your Investments
Evaluate your investment portfolio and consider tax-efficient strategies. This may include:
- Tax-Loss Harvesting: Offset gains with losses to reduce your taxable income.
- Qualified Dividends: Ensure you’re taking advantage of the lower tax rates on qualified dividends.
- Capital Gains: Plan for any potential capital gains and consider timing your asset sales to minimize taxes.
Plan for Major Life Events
Consider any major life events that may impact your tax situation, such as marriage, divorce, the birth of a child, or purchasing a home. These events can affect your filing status, deductions, and credits. Planning ahead can help you take advantage of tax benefits and avoid unexpected liabilities.
Consult a Tax Professional
A mid-year tax checkup is an ideal time to consult with a tax professional. They can provide personalized advice, help you identify tax-saving opportunities, and ensure you’re complying with tax laws. A tax professional can also assist in adjusting your withholding, estimating tax payments, and planning for major life events.
Conclusion
Conducting a mid-year tax checkup is a proactive approach to managing your tax obligations and financial goals. By reviewing your income, adjusting your withholding and estimated tax payments, maximizing retirement contributions, assessing deductions and credits, reviewing your investments, and planning for major life events, you can stay on track and avoid surprises at tax time. Consulting a tax professional can provide additional guidance and support.
Need help with your mid-year tax checkup? Schedule a consultation with us today and let us assist you in staying on track with your tax planning and financial goals.