Tax Insights

Your Guide to State, Local, Federal, Estate + International Taxation

Mid-Year Tax Planning Strategies

As summertime winds down and the kids head back to school, it’s the perfect time to take a few minutes to review you taxes and do some smart mid-year tax planning. People often wait until December to start thinking about their tax bill, but implementing changes now may have a greater effect on your overall tax bill, and provides the luxury of additional time to consider and plan for changes.

  • Finish your 2014 tax return – Has your 2014 tax return been filed? If you received an extension back in April, you have until October 15, 2015 to get it filed. But why wait if you have all of the information to complete your return now. In fact, trying to finish it up in a rush, whether it’s the April 15th deadline or the October 15th deadline, may very well result in errors and the potential of paying too much tax by missing valuable deductions and credits.
  • Adjust your withholding – Now that you have filed your 2014 tax return, did you receive a large refund or did you have to write a large check to the U.S. Treasury? Are your income and tax conditions about the same in 2015 as they were in 2014? If so, you may want to review your withholding and adjust it either down to reduce your refund, or up to prevent having to write a large check next year, particularly if the payment included an underpayment penalty. Usually, your goal is to have just enough tax withheld – not too much and not too little.
  • Evaluate your estimated taxes – Estimated tax payments are required if you earn income not subject to withholding. Estimated tax payments ensure that you pay your tax as you earn your income. This is a great time to review the 2015 estimated tax payments you have already made to determine if your payments are still on track and adjust your remaining quarterly payments, if necessary.
  • Make charitable donations – Your favorite non-profit is happy to take your money or unwanted household items. Many charities struggle through the summer, so why not make your donation now rather than waiting until the end of the year? Be sure to get a receipt from the charity for your donation.
  • Contribute to your retirement plan – The sooner you start contributing to a retirement plan the better. If your employer offers a 401(k) plan and you haven’t taken advantage of it, check on the enrollment requirements. If your employer matches your contributions to your 401(k) plan, increase your contributions to at least the maximum your employer will match. Consider contributing to a traditional IRA or a Roth. If you are already contributing to any of these plans, consider increasing the amount of your contributions up to the maximum limits. If you currently have a traditional IRA and you expect 2015 income to be significantly less than future years, or you have a net operating loss in 2015, you may want to consider rolling at least part of your traditional IRA to a Roth.
  • Evaluate your investments – This is a good time to sit down with your investment adviser and review your investments. Are you paying the 3.8% net investment tax which was created to help fund health care reform? Are there capital gains or losses that can be recognized, trying to net your gains as close to zero as possible? Evaluate your investments on an after-tax basis to ensure you are maximizing your investments and income while paying the lowest tax possible.
  • Get organized – Your tax organization system does not need to be elaborate. An accordion file works well for many people, or it can be as elaborate as scanning and saving your documents to files on your computer and tracking your income and expenses in a financial program such as Quicken. The key is to pick a system that you are comfortable maintaining and allows you to easily locate receipts and other documentation. Once you find a system that works for you, stick with it. At the end of the year, you will need to total up all of the different types of expenses such as medical, charitable, business, etc. And if your receipts are already organized, it will make your job much faster and easier when you sit down to organize your information for your tax return.

By Pamela Wheeler, EA