It turns out that the summer time could be the best time to be thinking about your taxes. Planning halfway through the year is more beneficial because you have a good idea of what your earnings are going to be and you will have ample time to make the necessary changes to cut down on the taxes you will owe.
With the help of Fox Business, here are the top 10 mid year tax moves to make now.
1. File your 2012 return-
If you filed for an extension this past year, you have until October 15th to file your tax return. You should work on it now to avoid mistakes such as overlooking a deduction or credit that could have potentially cut your tax bill. All it takes is one mistake to undo all the work you put into your return.
“Remember, too, that the IRS‘ Free File program is still operational. If your adjusted gross income last year was $57,000 or less, you can use the online system to prepare and file your taxes for, as the name says, free.”
2. Adjust your withholding-
If you received a big tax refund from the IRS this past year, then you should try to adjust how much you withhold. “Some people view tax refunds as forced savings accounts. That’s not necessarily a good idea. It means Uncle Sam, not you, has control of your money for a year.”
This way, you’ll avoid writing the U.S. Treasury a check for tax due if you under-withheld. And if you over-withheld, you won’t be waiting for a refund check.
Changing your withholding is easy; just submit a new W-4 to your payroll office.
3. Evaluate your estimated taxes-
There is no better time than summer time to reevaluate your estimated tax situation. Estimated tax payments are required if you have income that isn’t subject to withholding; its how the IRS makes sure that you are paying all the taxes on income.
“Look at what you’ve paid via your April and June 1040-ES filings and see whether your schedule is still on track. If not, you can adjust your upcoming September and January estimated tax payments.”
4. Hold on to day camp receipts-
“Most working parents are well aware they can claim the child and dependent care credit to help cover day care expenses for the kids.” Thus, you should keep the receipts to the day camps that your children may attend. The IRS treats these summer day camps as a substitute for regular care options.
Just a heads up that sleep-over camps don’t count; only day camps count for this tax credit.
5. Get organized-
This is a great way to get your 2012 tax returns in order and to prepare for your 2013 return. An accordion folder works for many people but there are many other organization methods out there; you just have to find what works for you.
“The key is to pick a system in which you can easily file and then find documentation such as business expense receipts, medical bills, charitable deduction substantiation and the like.” Once you pick a system, stick with it.
If you do stay organized, any questions regarding previous or current returns can be easily answered.
6. Give to charity-
Summer is the time when many non-profit organizations struggle so this could be the perfect opportunity to help them out. You can get tax credit for donating money or unwanted household items at any time during the year.
“Just be sure to get a receipt and put it in your newly created tax-filing system. The IRS now demands documentation for every monetary charitable gift, regardless of how small or large. Without it, the IRS could disallow your deduction.”
7. Contribute to your retirement plan-
The sooner you start contributing to your individual retirement account, either a traditional IRA or Roth, the quicker the account starts earning money.
If your employer offers a 401(k) account and you haven’t enrolled in it, take advantage of it now. Similiarly, if you do have one, go ahead and start increasing the contributions to this account. This will serve as a small but immediate tax break on your earnings for your money will come out of your paycheck before taxes are calculated.
“And if you decide you’d like to move from a tax-deferred traditional IRA to a Roth account with its tax-free distributions, go ahead. There’s no longer any income limit on such conversions.”
8. Plan for the 3.8% investment tax-
In order to fund healthcare reform, taxpayers will face new taxes such as the 3.8% investment tax. The tax, which took effect January 1, applies to the “net investment income” of married joint filers who have more than $250,000 of income (or $200,000 for singles). Only investment income—such as dividends, interest and capital gains—above the thresholds is taxed. The rate is a flat 3.8% in addition to other taxes owed.
“Evaluate your investments on an after-tax basis,” says Ray Rey Santodomingo, CFA and director of tax-managed strategies at Parametric Portfolio Associates in Seattle. “Place less tax-efficient investments in tax deferred accounts. Also look for opportunities to defer taxes even longer by employing tactics like loss harvesting.”
9. Make home energy improvements-
Making your home more energy-efficient not only helps you with the utility bills but it will also aid in paying your bills to the IRS. “You can make relatively easy and inexpensive upgrades, such as adding insulation or replacing leaky windows, and possibly receive a $500 tax credit on your 2013 tax return.”
Some other improvements include the installation of solar energy, wind power, fuel cell or geothermal systems. By making these more extensive renovations, an owner could qualify for a tax credit equal to “30% of the cost, including installation, without any cap on the credit amount.”
10. Hire a tax professional-
Summer is the perfect time once again to work on your extended 2012 returns or to prepare your 2013 returns. The summer time is when tax related professionals have the least amount of work so they will be able to help you out ASAP. Finally, starting your tax work in the summer will allow you to scout the different tax professionals with ample time to make sure you are getting the most for your money.
Just remember… JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.
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