Just like an annual wellness physical, a mid-year tax check-up is an essential step in ensuring
your financial health. Taking the time to assess your tax situation in August allows for ample
adjustments before the year-end deadline. Waiting until it’s time to file your taxes leaves little
room for meaningful changes. Following are key points to address during your tax check-up to
avoid any unpleasant tax surprises.
- Check Your Withholding: Your payroll tax withholding determines the amount of tax
deducted from your paychecks. Incorrect withholding can lead to unwanted outcomes. Over-
withholding might result in a larger tax refund but leaves you with less money in your regular
paychecks, impacting your cash flow. On the other hand, under-withholding could lead to a
significant tax bill when filing your return.
Consult an accountant or tax professional to assess your withholding accuracy. (Your payroll
department will likely not provide advice on this matter.) You can also try using IRS’s Tax
Withholding Estimator. It can be a helpful tool to evaluate your income tax, credits,
adjustments, and deductions. If adjustments are necessary, submit a new W-4 form to your
payroll department promptly.
- Keep Good Records: Organized record-keeping is vital for tax planning. Collect and preserve
your receipts and records to track sources of income and deductible expenses. A well-
maintained record will simplify the preparation of a complete and accurate tax return, ensuring
you don’t miss any potential deductions or credits.
- Identify Life Events: Life-changing events such as marriage, divorce, having a child, buying a
home, or significant changes in income can impact your taxes. Taking advantage of tax credits
and deductions as they relate to life events can make a big impact in your taxable income at tax
time. If you’ve had a change of address, be sure to notify IRS. If you’ve had a legal name
change, notify the Social Security Administration. Addressing these matters timely can prevent
potential issues during the tax-filing season.
- Make Estimated Payments: If you receive substantial non-wage income, such as self-
employment earnings, investment income, taxable Social Security benefits, or pension and
annuity income, it’s essential to make quarterly estimated tax payments. This helps you avoid
underpayment penalties and ensures you stay on top of your tax obligations throughout the
- Review Retirement Contributions: Maximizing contributions to your retirement plan can
lead to significant tax benefits. Contributions to 401(k) and Individual Retirement Accounts
(IRAs) reduce your taxable income for the year you contribute. If you’re under 50, the maximum
IRA contribution is $6,500, while 401(k) contributions can reach $22,500. If you’re 50 or older,
you can contribute up to $7,500 to an IRA and up to $30,000 to a 401(k).
Conclusion: Conducting a mid-year tax check-up is a proactive approach to avoid unpleasant
tax surprises. By addressing key points like reviewing withholding, keeping good records,
accounting for life events, making estimated payments, and maximizing retirement
contributions, you set yourself up for a smoother tax-filing season next year. Don’t wait until it’s
too late; take the time to tackle these moves now and enjoy a happier financial future.
If you like insightful tax tips, be sure to check the Franklin County Free Press for our weekly
article. You can also find other tax tidbits by following Saunders Tax on Facebook and Twitter
and by following me, Bev Stitely, on Linked In.
Saunders Tax & Accounting is open Monday through Thursday from 9 am to 5 pm and is
available online at www.SaundersTax.com. Awarded the Hagerstown Chamber of Commerce
“2023 Small Business of the Year”, we have been providing a Less Taxing Life and More
Prosperous Solutions since 1984!